Selling a house isn’t just about finding someone to buy it; you also need to understand the legal and tax rules to make sure everything goes smoothly. Knowing these rules can help you avoid surprises and make selling your home easier. In this article, you’ll learn about the important legal and tax things to know before you sell your house, so you can be prepared and have a successful sale.
See also: How is property valuation done in India?
Key legal aspects
Title verification
Title verification is a key step when selling a property. It means checking the property’s history to make sure the seller really owns it and that there are no legal problems or claims against it. This helps you avoid issues and ensures you get a clear, problem-free title.
How title verification works
- Check ownership history: Look at the property’s history to see how it’s changed hands and make sure each transfer is legal.
- Get an encumbrance certificate: Obtain this document from the local office to check for any past legal issues or claims on the property.
- Verify property records: Check government records to confirm details like size, location, and ownership.
- Inspect the property: Visit the property to make sure it matches the documents and to spot any issues.
- Review legal documents: Make sure all documents are genuine, complete, and correct, and check for any ongoing legal issues.
Documents needed
- Sale deeds: Proof of ownership transfer.
- Gift deeds: If the property was given as a gift.
- Inheritance documents: If the property was inherited.
- Power of attorney: If someone else is selling the property on behalf of the owner.
- Encumbrance certificate: Lists any claims or charges against the property.
- Property card: Official record of property details.
- Building permits and occupancy certificates: Show that the building is legally constructed and occupied.
- Property tax receipts: Confirm that taxes have been paid regularly.
Sale agreement
This is a formal contract that sets out all the details of the property sale. It includes information about the property, the price, how and when you will pay, when you’ll get possession of the property, and any other conditions. This agreement is usually written on special stamp paper to make it legally binding.
No objection certificate (NOC)
If the property is in a housing complex or apartment building, you need an NOC from the housing society or association. This certificate confirms that there are no outstanding fees or issues and that the society has no objections to the transfer of ownership.
Property tax clearance
Make sure that all property taxes are fully paid before selling. You need to get a clearance certificate from the local authorities to show that there are no pending tax payments.
Sale deed registration
This is the key step for officially transferring ownership of the property. The sale deed must be registered with the Sub-Registrar’s office within the required time. You will need to pay stamp duty and registration fees for this process.
Possession hand-over
This is when the buyer actually gets the property. You need to make sure that all utility services like electricity, water, and gas are transferred into the buyer’s name.
Due diligence
Before completing the sale, check the buyer’s identity and financial ability to ensure everything is legitimate. Make sure that all money transactions are done through official and legal methods.
Key taxation aspects
Capital gains tax
When you sell a house in India, you might need to pay capital gains tax on the profit you make. If you sell the property within 24 months of buying it, the profit is considered short-term and taxed at your regular income tax rate. If you sell it after 24 months, the profit is long-term and taxed at a flat rate of 20%, with some benefits for inflation adjustments.
Indexation
Indexation adjusts the purchase price of your property to account for inflation, which can lower your taxable profit. This means you’ll be taxed on a smaller gain because it takes into account how prices have increased over time.
Calculation of capital gain
To figure out your capital gain, subtract the adjusted cost of the property and any improvement expenses from the sale price. The formula is: Capital Gain = Sale Price – (Adjusted Purchase Cost + Improvement Costs).
Tax saving options
- Section 54: If you use the profit to buy another residential property within two years, you can avoid paying tax on that gain.
- Section 54F: If you invest the profit in certain bonds, you can also get a tax break.
- Section 54EC: If you put the profit into specific bonds issued by the National Highways Authority or REC Limited, you can reduce your taxable income.
Other tax considerations
- TDS (Tax Deducted at Source): If you sell the property for more than Rs. 50 lakhs, the buyer must deduct 1% TDS from the sale amount and pay it to the tax authorities.
- Stamp duty and registration charges: These are fees you pay to the government for transferring the property and are not considered taxes.
FAQs
A legal contract outlining terms of sale, including price, payment, possession, etc. It's crucial for enforcing rights and obligations.
It authorizes a representative to act on behalf of the property owner in the sale process.
A lawyer can guide through legal complexities, protect interests, and ensure smooth transactions.
Proper title verification, timely documentation, legal counsel, and understanding tax implications.
Ignoring title verification, delaying registration, not obtaining NOCs, neglecting taxes, and not disclosing property defects. What is a sale agreement and why is it important?
What is the role of a power of attorney in selling a property?
How important is legal counsel when selling a property?
How can I ensure a smooth property sale process?
What are the common mistakes to avoid when selling a property?
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
