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Real estate accounting in India is not just about keeping records of buying and selling property. It also involves understanding different taxes and rules that can affect your money and legal responsibilities. Whether you are buying, selling, or investing in property, it is important to know about Tax Deducted at Source (TDS), Goods and Services Tax (GST), and capital gains.
TDS is a tax that is deducted at the time of property purchase if the value crosses a certain limit. GST mainly applies to under-construction properties and related services. Capital gains tax is the tax you pay on the profit earned when you sell a property, depending on how long you owned it.
All these taxes are very important in real estate as they help you stay compliant and plan your finances better. In this article, we will briefly explain TDS, GST, and capital gains in simple terms.
Real estate accounting in India simply means keeping proper records of all money-related activities in the property business, like buying, selling, renting, or managing properties. It helps builders and property owners stay compliant with rules set by the Real Estate Regulatory Authority. This type of accounting also tracks the cost of projects that are still under construction (work in progress), manages high-value properties and loans, and ensures that income is recorded correctly as per accounting standards like Ind AS 115 or AS 7. In simple terms, it helps real estate businesses stay organised, transparent, and legally compliant.
Here are the key aspects of real estate accounting in India explained in simple language:
RERA Compliance - Builders must keep clear and proper financial records for every project. As per the Real Estate (Regulation and Development) Act, 2016, 70% of the money received from buyers must be kept in a separate bank (escrow) account and used only for that specific project.
Revenue Recognition - Income is recorded either as the construction progresses or when the project is completed and handed over. This follows accounting rules like Ind AS 115 to ensure accurate reporting.
Project-Based Accounting - Each real estate project is treated separately. This helps track all costs, expenses, and profits clearly for every project.
Inventory Management - Costs like land purchase, development, and construction are treated as stock (inventory) until the property is sold.
Assets and Liabilities - Companies also keep track of loans, property taxes, maintenance costs, and the reduction in value of assets over time (depreciation).
TDS, GST and Capital Gains are the key terms of real estate accounting.
TDS is a tax that is deducted at the time of making certain payments, including property transactions. In real estate, when a buyer purchases a property above a specified value, they must deduct a percentage of the payment as TDS and deposit it with the government. This system ensures that tax is collected in advance and reduces the chances of tax evasion. In real estate accounting, TDS helps maintain transparency and proper documentation of transactions.
Buying Property (Section 194IA) - If you buy a property worth more than ?50 lakh (except agricultural land), you must deduct 1% TDS from the total amount and pay it to the government.
Paying Rent (Section 194IB / 194I) - If you are an individual or HUF paying rent above ?50,000 per month, you need to deduct 5% TDS. For other tenants (like businesses), the TDS rate is usually 10%.
Joint Development Agreements (Section 194IC) - If payments are made under such agreements (like between a landowner and builder), 10% TDS must be deducted.
Brokerage or Commission (Section 194H) - If you pay commission or brokerage above ?20,000, you need to deduct 2% TDS.
Property Sold by NRI (Section 195) - If you buy property from an NRI, the TDS is higher usually 20% or more on the profit, depending on how long the property was held and tax rules.
GST is an indirect tax applied to the sale of under-construction properties and related services in real estate. Launched on July 1, 2017, it replaced multiple cascading central and state taxes to create a unified tax structure, taxing only the value added at each stage. It is charged by builders and paid by buyers as part of the property cost. In accounting, GST helps standardise taxation across projects and simplifies tax calculations by replacing multiple indirect taxes.
Affordable Housing - You pay 1% GST, but you cannot claim any tax credit. This applies to smaller homes (up to 60 sq.m in metro cities or 90 sq.m in non-metros) priced up to ?45 lakhs.
Non-Affordable or Luxury Homes - You pay 5% GST, and again, no tax credit is available.
Commercial Property - GST is 12%, but here you can claim Input Tax Credit (ITC), which helps reduce your overall tax burden.
Commercial Spaces in Residential Projects - If shops or commercial units are part of a housing project and make up 15% or less of the total area, GST is 5%.
Ready-to-Move-In Properties - No GST is charged if the property is fully completed.
Other Services - Services like brokerage, legal work, or premium location charges attract 18% GST.
Capital gain refers to the profit earned when a property is sold at a higher price than its purchase cost. In real estate accounting, it helps determine the tax liability of the seller based on the holding period (short-term or long-term). It is crucial for financial planning and tax calculation.
When you sell a property, the profit you earn is called capital gains, and you may have to pay tax on it. Here are the key points in easy language:
1. Holding Period (How long you owned the property):
Short-Term Capital Gain (STCG) - If you sell the property within 24 months, the profit is added to your income and taxed as per your income tax slab (can go up to 30%).
Long-Term Capital Gain (LTCG) - If you sell after 24 months, you get lower tax rates.
2. LTCG Tax Rates (after July 2024):
12.5% without indexation - Good if your property value has increased a lot.
20% with indexation - You can adjust the purchase price for inflation, which reduces your taxable profit.
3. Depreciation Rule:
If you claimed depreciation on a rented property, that part of the profit may be taxed at a higher rate when you sell it.
4. How profit is calculated:
STCG - Selling Price – Purchase Cost – Improvement Cost – Expenses
LTCG - Selling Price – Adjusted Purchase Cost – Adjusted Improvement Cost – Expenses
5. How to save tax:
You can reduce LTCG tax by reinvesting in another house or certain bonds under Sections 54 or 54F.
Understanding real estate accounting in India is essential for anyone involved in property transactions. Taxes like TDS, GST, and capital gains may seem complex at first, but having basic knowledge can help you avoid mistakes and manage your finances better. By staying informed, you can ensure legal compliance, reduce tax burden, and make smarter investment decisions. Whether you are a buyer, seller, or investor, knowing these concepts gives you more control and confidence in your real estate journey. Always consider professional advice when needed to make the best financial choices.
