Selling a house is a milestone as significant as buying one. There may be several reasons to sell a house, such as financial needs, relocation, etc. Although selling a house could seem less complicated than buying a house, there are several key things to consider during and after the property sale is completed. From organising documents to settling in a new neighbourhood – these are among the various things to keep in mind after selling a house.
Checklist for post-sale of a property in India
- Finalise sale agreement: The sale agreement must be duly signed by the seller and the buyer with clearly specified terms and conditions.
- Ownership transfer: The legal transfer of ownership must be done by executing the sale deed and registering it with the relevant authority.
- Settle outstanding dues: The property owner must ensure that any pending dues, such as property taxes, utility bills, maintenance fees, society charges, etc., are cleared.
- Handover of documents: Make sure to provide the buyer with all property-related documents, including the sale deed, possession letter, occupancy certificate, property tax receipts, etc.
- Notify authorities and service providers: The property owner must inform the municipal corporation, utility companies (electricity, water and gas) and society about the change in property ownership.
- Cancel or transfer services: The seller should ensure to cancel or transfer services, such as home insurance, internet connection, cable TV, and newspaper subscriptions to the new buyer’s name.
- Vacate property: After completing the documentation, the seller should hand over possession of the property to the buyer as per the agreed timeline and vacate the premises in a clean and orderly condition.
- Settle legal and financial matters: After the property sale is completed, close any existing loans or mortgages on the property and get a ‘no objection certificate’ from the lending institution.
- Verify receipt of payment: After completing the sale transaction, the seller should confirm receipt of the sale proceeds in his bank account and get a payment receipt from the buyer.
- Update personal records: The property seller should update your personal records, including Aadhaar card, PAN card, voter ID, and driving licence, with the new address if applicable.
- Update contact information: Post the sale of a property, make sure to update contact information with banks, insurance companies, post office, and other relevant institutions.
- Retain copies of documents: Maintain copies of all sale-related documents. These include sale agreement, sale deed, payment receipts, and correspondence with the buyer.
Key things to remember after selling a property
Notify real estate agent or lawyer
Let your real estate agent or lawyer know that the sale of the house has been completed. You could get assistance from them in terms of handling further inquiries or completing formalities, such as delivering legal documents or resolving any issues that may arise after the sale.
Organise property documents
Post-sale of a property, every seller should maintain all the documents related to the sale for future financial and legal reference. These include:
- Sale agreement that contains the sale terms and conditions.
- Receipts for payment of any society transfer fees. This amount is usually split between the buyer and the seller.
- Tax Deducted at Source (TDS) challan, which is proof of tax withheld and paid on behalf of the seller by the buyer.
- Documents related to any home improvements and utility bills.
In addition, the seller must collect and keep key documents that will be required for taxation purposes, as they could impact their capital gains calculations. The cost of home improvements can adjust the property’s cost basis, significantly lowering the capital gains tax owed by the seller after the property is sold. One should also securely keep the final utility bills, to ensure that any claims made by the new property owners for payments due before the ownership transfer can be verified and managed.
Manage sale proceeds
The seller should invest his sale proceeds in instruments, such as money market funds, which ensures liquidity. These funds are less volatile than stocks or mutual funds and provide sound returns. They offer easy liquidity or prove beneficial when planning to reinvest in another property or major investment soon.
Assess financial plans
After completing the sale transaction, a property seller must look at his short-term and long-term financial goals and devise a strategy to meet these goals. He may have to assess his needs, whether it is early retirement, another major investment or future savings. Based on these objectives, one must look at suitable investment options. This may involve boosting one’s investment or creating an emergency fund. Approaching a financial advisor is a wise idea to help make a well-thought-out decision.
Handle taxation (capital gains tax)
Capital gains tax refers to the tax applicable on any profit arising from the sale of a capital asset. In India, selling a property after holding it for more than two years makes the owner liable to pay long-term capital gains tax. The tax rate is levied at 20% plus applicable surcharge and cess, after adjusting for inflation through indexation benefits. In case one sells the property within two years of buying it, the gains are considered as short-term and are added to his regular income, taxed at the applicable income tax slab.
Sellers can save on capital gains tax by reinvesting the proceeds into another property within two years or invest in capital gains bonds, which are mentioned under Section 54EC of the Income Tax Act. These bonds are issued by entities, such as NHAI and REC, and the investment should be made within six months of the property sale. One should maintain detailed records of the transaction and improvements made to the property. This helps in calculating and determining one’s capital gains. One may take the advice of a tax expert.
Adjusting tax withholdings
It is essential for property sellers to assess his income situation after the sale and adjust his tax withholdings, especially if his tax bracket has changed or they have different income sources.
That is, if a person has moved from a salary-based income to an investment-based income, he may have to modify how much tax is withheld from his earnings or set up estimated tax payments if required. For this, one needs to submit a duly filled, new Form W-4 to the employer. Self-employed individuals can adjust his quarterly estimated tax payments. This will help manage one’s taxes better.
Consider reinvestment
Real estate
Property sellers should consider reinvesting the sale proceeds wisely to gain financial benefits and lower their tax liabilities.
One can consider investing the money to buy another property. This will help them save on the capital gains tax. Under the applicable tax laws, investing the capital gains from the sale of the old property into a new property makes the seller eligible for a tax exemption under Section 54 of the Income Tax Act.
To ensure this, one should complete the purchase of the new property one year before or two years after the sale of the previous property. One can also consider building one’s house within three years after the sale.
The new property must be in India. One cannot sell the property for at least three years after the acquisition to get the tax benefit.
Before planning to invest in another property, one needs to consider various aspects such as one’s lifestyle needs and financial situation. One may have to ascertain whether they need to relocate to a new area with access to key facilities, schools or workplace. Additionally, one may have to assess different types of property and locations before deciding to suit his preference, budget, and long-term goals.
Capital gains account scheme
The Capital Gains Account Scheme (CGAS) was introduced to allow taxpayers to get an exemption from Capital Gains. This is an ideal option for those who do not want to reinvest immediately in another property.
- Property sellers can open a Capital Gains Account in any major bank under the scheme before the due date of filing their income tax return.
- They must deposit the capital gains amount into this account.
- The funds invested in this account must be utilised only for purchasing or constructing a new property within the specified timelines (like the timelines for direct reinvestment).
- This account helps keep one’s money safe and provides tax exemption until one plans to reinvest in real estate.
- The withdrawals from the Capital Gains Account should be used for the purchase or construction of the property within a specified period.
- Unused funds after the specified period are subject to taxation as capital gains.
Other investment options
If the seller is not willing to immediately reinvest in real estate, they can consider other investment options such as stocks, bonds and mutual funds. These investment options help diversify one’s assets and lower risk across different asset classes while offering good returns.
- Bonds: These investments provide lower returns and a steady income.
- Stocks: Stock investments provide higher growth potential. However, as stocks markets are known for their unpredictability, it is ideal for those who are willing to deal with fluctuations in their investment value.
- Mutual Funds: Mutual Funds are an investment that allows one to invest in a diversified portfolio managed by a professional fund manager.
Update estate planning
Another key responsibility of every property seller is to update his estate planning to help plan for future and ensure his assets get distributed as per his plans.
One should start by assessing his will and any trusts established by him. It is essential to verify if the property sale impacts any specific bequests or provisions.
For instance, in case one has sold his house that was to be inherited by a family member, then one must update it in his documents. Similarly, beneficiary details must be update in retirement accounts and life insurance policies.
Review estate planning documents
It is also vital to review one’s other estate planning tools, such as powers of attorney and healthcare directives. If there is a change in one’s financial situation, these documents may require modifications.
If the seller relocates to another state or country, he may have to check the local laws that could impact how the documents are interpreted or enforced.
One can consult a legal professional or an estate planning attorney to get personalised guidance.
Consider logistics of moving
- Change of mailing address: Property sellers must update their addresses in the records of various institutions, such as banks, credit card companies, utility providers, postal service, and tax authorities.
- Utility services: Another task is to get the utilities, such as electricity, water, gas, and internet disconnected from the current place and install them at the new residence.
- Important documents: Vital documents, such as identity proofs, contracts, and new house documents must be kept securely.
Settling in new location
- Explore neighbourhood: As new homeowners, one must explore the neighbourhood. Check if there are hospitals, pharmacy, grocery stores, and other facilities in the vicinity.
- Meet neighbours: Connect with neighbours and community, which will help provide a sense of belonging and security.
Housing.com News Viewpoint
A seller must be emotionally prepared to deal with the transition of letting go of his house and move on to accept newer opportunities. After all, selling a house can trigger many memories. Things like writing a letter to record one’s experience or planning regular visits to stay connected with the community can be beneficial.
Besides fulfilling the legal and financial obligations, a property seller must plan for his next move after completing the sale. Whether one wants to buy another property or consider other investment options, such a decision should be based on careful planning. For this, it is necessary that one takes the help of a financial advisor who can provide guidance, keeping the individual’s financial situation in mind.
FAQs
You can plan to stay connected with the previous community through community groups or social media.
Make sure to keep records of home improvements and utility bills for tax filings. Also, one should know about capital gains tax and look to save by reinvestment. Approach a tax expert to know about capital gains tax obligations.
Organising property documents, considering reinvestment options, and updating estate planning, and future financial plans are among the key things to do after selling a house. How to emotionally detach from the previous house after selling it?
What are the tax implications one should be aware of after selling a house in India?
What are the important things to do after selling a house in India?
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