Taxation of profits or gains from property sale occurs at a fixed rate of 20%, provided the asset has been held for over 24 months. While this rule might seem straightforward, the actual calculation of these gains is far from simple. From delving into old stamp duty receipts to acquiring valuation reports, the steps to accurately determine the figures are quite intricate. Therefore, taxpayers should safely keep various documents in connection with the purchase and sale of immovable property to facilitate precise tax computation and smooth tax assessments.
Transfer deed for property sale
This is probably the most basic and vital document that a taxpayer should preserve. Transfer deeds contain information such as the stamp duty value of the property, transfer date, co-owners’ names, and the agreed-upon sale amount. All these details play a pivotal role in computing capital gains and should be retained by the taxpayer.
Receipts for direct sale-related expenses
Expenses directly incurred in relation to the purchase and sale are allowed as a deduction when calculating capital gains. If a property is sold through an agent, the brokerage fees paid to the agent can be reduced from the gain amount. To claim this deduction, the taxpayer must possess the receipt for the brokerage payment along with proof of payment.
Purchase agreement documentation
The cost of acquisition pertains to the property’s purchase price along with other expenses that the taxpayer may have incurred for the purchase of the property. The income tax department typically requires the taxpayer to produce the purchase documents, letter of allotment from the builder, letter of possession along with all other supporting documents like call money letters and payment receipts. As a result, it’s crucial for taxpayers to maintain all relevant documents and invoices linked to the property’s purchase.
Valuation report
In cases where a property was bought before April 1, 2001, the taxpayer must obtain the fair market value from a valuation officer. This value is determined based on ready reckoner rates and the property’s location. Taxpayers can obtain this value during the sale process.
Home loan interest certification
Taxpayers can also claim deductions for the interest payments made when the property was under construction. Therefore, maintaining annual interest certificates for the period when the property was under construction is also essential for accurate capital gain tax calculations.
Renovation cost invoices
The cost of improvements refers to capital expenses incurred by the taxpayer to enhance or add value to the property. This cost is subtracted from the sale amount when computing applicable taxes. To claim this deduction, the taxpayer must possess invoices for renovation work conducted, along with evidence of payment. Only expenses incurred after April 1, 2001, are eligible.
The writer is partner, Nangia Andersen India. Inputs from Neetu Brahma