Save Capital Gain Tax on Property Sale: If you are planning to sell a property then it would be appropriate to calculate the tax liability on capital gains in advance. When you sell a property, capital gains tax due from it is taxed keeping in mind inflation and indexation, but you can also get this relief. The profit made on the sale of property is called capital gain. It is obtained by deducting the amount spent on buying the property from the profit made by selling the property and expenses on its repair etc.
Tax liability fixed according to the holding period
Capital gains arising from the sale of assets are liable to tax as per the holding period. For example, if you sell the property for a holding period of less than three years (36 months), then the profits will be treated as short-term capital and tax will be paid on it. Tax is to be paid on short term capital gains as per the income tax slab. If you sell the property after 36 months from the date of acquisition, then long turn capital gains tax will have to be paid on the profits. With the benefit of indexation, real estate attracts a cess of 3 per cent plus long term capital gains tax at the rate of 20 per cent. Keep in mind that you will also have to pay tax on profits from the sale of property inherited by gift or inheritance.
Tax Talk: How property income is taxed, know what are the rules related to it
This is how you can save tax on capital gains on sale of property
Individuals and Hindu Undivided Families (HUFs) get the benefit of exemption under the Income Tax Act 1961 on long-term capital gains on sale of house property under the following circumstances-
- If this capital gain is used for the purchase or construction of another house.
- The purchase of a new home should take place one year before or two years after the sale of the old home.
- The construction of the new house should take place within three years from the sale of the old house.
- Purchase or construction of only one additional house property.
- The purchased construction property should be in the country itself.
- After buying a new house, it should not be sold for three years.
- If the value of the new property is less than the sale amount of the old house, the remaining amount can be reinvested within 6 months under section 54EC.
Do this multiplication before buying a Life Insurance Policy, it will help in saving tax on maturity amount
These are also ways to save tax
- If after the sale of a property, you are not able to buy a new house immediately but plan to take it forward, then you can keep the profits in a public sector bank under the Capital Gains Account Scheme (CGAS). This gives you three years to start building the house.
- One can invest in notified bonds within six months to save tax on the profits made from the sale of assets. These bonds are issued by Rural Electrification Corporation and NHAI (National Highways Authority of India). However, if you take a loan by transferring or pledging these bonds during three years, then capital gains tax will have to be paid on it. Keep in mind that up to Rs 50 lakh can be invested in these bonds in a financial year and investment has to be maintained in them for at least 3 years.
Income Tax Benefits for Senior Citizens: Senior citizens get special concessions in tax, know what are the rules related to it
- Capital gains tax is not levied on the sale of agricultural land if it is 8 km away from a municipality, municipal corporation, town committee, cantonment board or other civic body with a population of 10,000 or more.
Capital gain profit can be set off with capital gain loss. Although it should be in the loss prior date. It should be noted here that short term capital loss can be set off only with short term capital gain. Whereas, long term capital loss can be set off with long term capital gain and carry forward for 8 years. However, to take this benefit, it is mandatory for you to finalize the ITR ahead of time.
(Input: bankbazar.com)
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