Tax Implication For Resident of India

                With the recent changes in tax regulations, resident Indians investing in real estate face updated tax implications that influence 
decisions on property acquisition, investment strategies, rental income, and capital gains. Here’s a comprehensive look at how 
these changes affect different aspects of real estate for resident Indians. 

1. Taxation on Property Purchase: Stamp Duty and Registration Fees 

One of the significant initial expenses in real estate transactions is stamp duty and registration fees. Stamp duty, which varies from 
4% to 8% depending on the state, is levied on the property’s sale value or ready reckoner rate, whichever is higher. Registration fees, 
typically 1% of the transaction value, are also mandatory. 
While these expenses add up, they are not eligible for tax deduction directly. However, if the property is purchased for investment purposes, 
these costs can be factored into the property’s acquisition cost. This can reduce capital gains tax when selling the property, as the initial 
investment cost will be higher, leading to lower net gains. 

2. Tax Implications for Home Loans 

The government provides tax benefits on home loans, encouraging property acquisition. If an individual takes a loan for their first house, 
the following deductions apply: 
Section 80C Deduction on Principal Repayment: Up to INR 1.5 lakh can be claimed as a deduction under Section 80C of the Income Tax Act. 
This benefit is available only if the property is not sold within five years from the end of the financial year in which it was purchased. 
Section 24(b) Deduction on Interest Paid: A deduction of up to INR 2 lakh on interest paid on home loans can be claimed for self-occupied 
properties. For properties rented out, there is no upper limit on interest deduction, but the overall loss from house property that can be set 
off against other income is capped at INR 2 lakh. 
Additional Deduction for First-Time Home Buyers: An extra INR 50,000 deduction on home loan interest under Section 80EE is available 
for first-time buyers if the loan does not exceed INR 35 lakh and the property’s value is within INR 50 lakh. 
These deductions make home loans more attractive for first-time buyers and those looking to invest in real estate. 

3. Rental Income Taxation 

Rental income generated from property is taxable under the head “Income from House Property.” The tax implications depend on whether 
the property is self-occupied or rented out: 
Standard Deduction: A standard deduction of 30% on the net annual value (gross rent minus municipal taxes) is allowed for maintenance 
and other expenses. This standard deduction simplifies compliance and reduces tax liability. 
Municipal Taxes Deduction: Property taxes paid to the local authorities can be deducted from the rental income. This reduces the taxable 
income, as only net rental income is taxed. For residents with more than one property, only one can be declared as self-occupied, while the 
other is deemed rented, and notional rent (estimated rental income) is taxable. This rule affects individuals holding multiple properties, as 
they need to consider potential tax liabilities. 

4. Capital Gains Tax on Sale of Property

When selling real estate, resident Indians are subject to capital gains tax, which varies based on the holding period of the asset. 
Short-Term Capital Gains (STCG): If the property is held for less than two years, the gains from the sale are classified as STCG and are added 
to the seller’s income and taxed according to their income tax slab rate. 
Long-Term Capital Gains (LTCG): Properties held for more than two years are eligible for LTCG, taxed at a flat rate of 12.5% with indexation 
benefits. Indexation allows individuals to adjust the property’s purchase price to account for inflation, reducing the effective tax burden. 
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5. Capital Gains Exemptions under Sections 54 and 54EC

Taxpayers can reduce their LTCG liability by reinvesting in specific assets: 
Section 54: If an individual reinvests the proceeds from the sale of residential property into another residential property within two years or 
constructs a new property within three years, they can claim an exemption on LTCG. Budget 2023 limited this exemption to the reinvestment 
of up to INR 10 crore, impacting high-net-worth individuals (HNIs) significantly. 
Section 54EC: For gains up to INR 50 lakh, individuals can claim an exemption by investing in certain government-notified bonds (like NHAI 
and REC) within six months of the sale. These bonds have a five-year lock-in period.  

6. Changes in TDS on Property Purchases from Non-Residents 

If a resident Indian buys property from a non-resident Indian (NRI), the buyer must deduct TDS on the transaction amount at rates varying 
based on the type of capital gains (20% for LTCG and as per the tax slab for STCG). This provision helps in ensuring tax compliance on property 
transactions involving NRIs. 

7. Real Estate Investment Trusts (REITs) and InvITs 

With increased interest in real estate-backed financial instruments, REITs have gained popularity in India. These offer a way for individuals 
to invest in real estate without directly buying property. The income from REITs, mainly in the form of dividends and interest, is partially taxable. 
Dividends from REITs are exempt from tax if the REIT has paid Dividend Distribution Tax (DDT). However, interest income from REITs is taxable 
at the applicable income tax rates. 

8. Tax Implications for Joint Ownership 

For properties purchased jointly, each co-owner’s tax liability is proportionate to their share of ownership. If the property is rented, rental income and
tax benefits on loan repayments are shared based on ownership percentage. Joint ownership can be beneficial for married couples or family members 
looking to split the financial burden and tax benefits. 

9. Implications of Section 194-IA TDS on Property Purchases 

For properties purchased at a value of INR 50 lakh or more, a 1% TDS is applicable under Section 194-IA. Buyers are required to deduct this tax from 
the sale value before payment and deposit it with the government. This amount acts as an advance tax on behalf of the seller, reducing tax evasion in 
property transactions.