Furniture and Fixtures Can Save You Tax and Stamp Duty, but Only If You Do It Right Way
Buying or selling a property in India is a complex process, and the tax implications can be daunting. However, a tax-saving idea has been circulating in the property market–declaring furniture and fixtures as personal effects during a property sale. This approach aims to reduce the tax on capital gains by declaring the property sale at a lower price while selling the furniture separately.
Maximize-tax-savings-on-furniture-and-fixtures
While it seems like a win-win, there are risks associated with not doing it right. It is crucial to understand the documentation required and the potential consequences of missteps along the way.
Key Features & Benefits:
- By selling furniture and fixtures separately, one can avoid paying capital gains tax on that portion of the sale amount. Additionally, the buyer may also benefit from stamp duty savings on the furniture and fixtures.
- To classify a part of the property sale amount as furniture and fixtures, it is necessary to create bills of sale. Each item can be valued at the current fair market value, or an amount agreed upon by the seller and buyer, if justified.
- Potential consequences of not doing it right include scrutiny from tax and stamp authorities, penalties and fines, and even charges of evading stamp duty through unlawful means.
- Taking the right approach can lead to significant tax savings.
Tax saving on Furniture and Fixtures
Sellers often overvalue furniture and fixtures to save on tax since supporting invoices are not usually requested at the time of sale or when filing income tax returns. However, if a tax scrutiny arises later and the seller doesn’t have bills to support the amount paid and the source of investment, the tax department can charge 20% tax (30% in the case of short-term gains). Along with the due tax, the taxpayer will also have to pay 1% monthly interest on it and any penalty levied by the tax officer.
It is essential to note that NRIs cannot carry out this transaction without invoices because they need certificate 15CB to send money abroad. If they sell the property without these invoices, they will have to pay the remaining tax instead of saving on tax. For resident Indians, excluding furniture and fixtures from the property sale amount, even without proper documents, can have dire consequences.
Selling furniture and fixtures separately can save you money–if it’s done right. Ensure that you have the appropriate documentation for the sale and note that not all household items qualify as personal effects. Also, be aware of the potential consequences of missteps along the way.
Maximize tax savings on furniture and fixtures
If in doubt, consult a reputable CA or tax specialist to guide you through the process. With the right guidance, you can save on tax and streamline the property transaction process.
Disclaimer:
Estabizz Fintech compiled the material in this article using the most recent Acts, Rules, Circulars, Notifications, Provisions, Press Releases, and material applicable at the time. They ensured the completeness and correctness of the material through due diligence. When using this material, users must consult the relevant, applicable legislation. The given data may change without prior notice and does not constitute professional advice. Estabizz Fintech disclaims all liability for any results from the use of this material.
Disclaimer:
The material in this article was compiled using the most recent Acts, Rules, Circulars, Notifications, Provisions, Press Releases, and material applicable at the time. The completeness and correctness of the material ensured with due diligence. It is required of users of this material to consult the relevant, applicable legislation. The data given may change without prior notice and does not constitute professional advice. As a result, Estabizz Fintech disclaims all liability for the results of using such material.
