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BUILDER SELLING CONSTRUCTION PROPERTY

mayuri (Tax Consultant) (253 Points)

26 April 2025

Hi all,

One of my Client is small builder, he buys Open plots, construct houses and sale it.

In AIS sale of builing is reflecting .

What is the tax implication on above scenario?

Thanks in advance.

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Rama chary Rachakonda (Master in Accounts & high court Advocate email ID:ramachary64@gmail.com voice no:9989324294) (7430 Points)
Replied 26 April 2025

Your client's business model involves buying open plots, constructing houses, and selling them.

Here's a breakdown of the tax implications: Tax Implications -

*Capital Gains Tax*: If your client sells a property after holding it for more than 24 months, it's considered a long-term capital gain and is taxed at a flat rate of 20%.

However, if the property is sold within 24 months, it's considered a short-term capital gain and taxed according to the income tax slab rates. -

*Business Income*: If your client's primary mode of income is from buying, constructing, and selling properties, the profits generated from such activities are considered "Income from Business or Profession" and taxed accordingly

Exemptions - *Section 54 Exemption*: If your client invests the net proceeds from the sale of a property in purchasing or constructing another residential property within a specified timeframe (1 year before or 2 years after selling the old asset, or constructing a new house within 3 years), they may be eligible for exemption from capital gains tax.

Tax Benefits on Construction - *Interest on Home Loan*: Your client can claim a deduction of up to ₹2 lakhs for interest paid on a housing loan under Section 24B of the Income Tax Act.

However, this deduction is allowed only after the property is completed and possession is taken. -

*Principal Repayment*: Your client can also claim a deduction of up to ₹1.5 lakhs for principal repayment on a home loan under Section 80C.

GST Implications - *GST Rate*: The GST rate applicable to under-construction properties is 5%.

For affordable housing properties priced up to ₹45 lakhs, the GST rate is 1%.

It's essential to consult a tax professional to determine the specific tax implications for your client's business, considering their individual circumstances and the complexity of tax laws.

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