Before you sell a residential home, be aware of the tax and legal implications

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Finding a buyer for your house is only one aspect of selling; to ensure a successful transaction, you also need to be aware of the applicable laws and taxes. If you follow these guidelines, selling your home may go more smoothly and there may be fewer unpleasant surprises. This article will teach you the essential tax and legal information you should know before listing your home for sale so you can be ready and have a smooth transaction.

Important legal considerations

Title confirmation

Verifying title is an important stage in the sale of a property. It entails investigating the property's past to confirm that the seller is the true owner and that there are no outstanding legal issues or claims. This keeps things easy for you and ensures that the title is clear and unambiguous.

The process of title verification

Verify the ownership background: Examine the past of the property to determine who has owned it and confirm that each transfer was authorized.

Obtain a Certificate of Entrance: To see if the property has ever been involved in any legal disputes or claims, get this document from the local office.

Examine the property documentation: See formal documentation to confirm details such as ownership, location, and size.

Examine the asset: Check that the property fits the documentation and look for any problems by visiting it.

Examine legal documents to ensure they are accurate, full, and authentic. 

Required Documents

Title deeds: documentation of ownership conversion.

Gift deeds: If the asset was given to you.

Records attesting to inheritance: Should the asset be inherited.

Power of attorney: When the owner's property is sold by a third party.

Every charge or claim made against the property is listed in a certificate of encumbrance.

Property card: A formal documentation of property information.

Construction licenses and certificates of occupancy: Demonstrate that the building was constructed and is occupied legally.

Receipts for property taxes: Verify that taxes have been consistently paid.

Sale contract

This official contract lays out every aspect of the selling of the real estate. It contains details on the item, the cost, the method and timing of payment, the time you'll receive possession of the item, and any additional terms. This agreement is usually written on a specific stamp paper in order for it to be legally enforceable.

Certificate of No Objection (NOC)

You require an NOC from the housing society or association if the property is located in an apartment complex or housing society. 

This certificate certifies that the ownership transfer has been approved by the community and that there are no outstanding fees or other issues.

Clearance of property taxes

Make sure all property taxes have been paid in full before selling. To demonstrate that there are no outstanding taxes, you must obtain a clearing certificate from the local authorities.

Registration of sale deeds

This is the crucial phase in the formal transfer of property ownership. The selling deed needs to be registered with the Sub-Registrar's office within the specified time frame. Stamp duty and registration costs are needed for this process.

Transfer of possession

Verify that all utility services, such as gas, water, and electricity, are moved into the buyer's name.

Extensive diligence: Verify the buyer's identification and financial situation before finalising the transaction to ensure accuracy.Ensure that all financial transactions are carried out in a formal, lawful manner.

Important topics of taxation

Tax on capital gains

You might have to pay capital gains tax in India on any earnings you make when you sell your house. If profits are sold within 24 months after purchase, they are considered short-term and are subject to taxation at your regular income tax rate.

The profit is long-term and taxed at a fixed rate of 20% if you sell it after 24 months, with certain perks for inflation adjustments.

Indexation 

Indexation reduces your taxable profit by factoring inflation into the acquisition price of your property. It takes price increases into consideration over time, so the taxes you pay on your gain will be lower.

Capital Gains Calculation

Subtract the sale price from the adjusted cost of the property and any improvements to determine your capital gain. Capital Gain = Sale Price - (Adjusted Purchase Cost + Improvement Costs) is the formula.

Tax-saving strategies

Section 54: You can defer paying taxes on a profit if you utilize it to purchase another residential property within two years after the original transaction.

Section 54F: You may also receive a tax benefit if you invest the profit in specific bonds.

Section 54EC: You can lower your taxable income if you invest the profit in certain bonds issued by REC Limited or the National Highways Authority.

Additional tax implications

TDS (Tax Deducted at Source): The buyer must subtract 1% of the sale price from the sale and pay the tax authorities if the property is sold for more than Rs. 50 lakhs.

Stamp duty and registration fees are not taxes; rather, they are sums of money you pay the government to transfer ownership of the property.