Tips to Save Tax on The Sale of Residential Property

Posted on

Owning a belongings provides safety together with acts every bit a long-term investment. Selling a belongings at a high cost feels dandy together with brings turn a profit to the owner. Many are non aware that turn a profit made on the sale of a belongings is taxable. Here are about tips on how 1 tin avoid or minimize taxation on the sale of a property. Before seeing the ways to minimize taxes lets us sympathize the constituent that determines taxation liability.

Tips to Save Tax on The Sale of Residential Property

Holding catamenia of property: The fourth dimension you lot stay every bit the possessor earlier selling the belongings is a cardinal determining constituent to make upwardly one’s mind taxation liability. The turn a profit obtained from selling a belongings is known every bit a uppercase gain. The uppercase taxation attain calculated on the holding catamenia is classified into Short Term Capital Gains (STCG)and Long-term Capital Gains (LTCG).

  • Short Term Capital Gains (STCG) – If you lot ain a belongings for less than 24 months, it is termed every bit STCG. The taxation applicable is equal to the ordinary income taxation that you lot pay based on your taxation bracket.
  • Long Term Capital Gains (LTCG) – It is applicable if you lot ain the asset for to a greater extent than than 36 months. Based on the income together with taxation filing, a seller must pay about 20% inward Republic of Republic of India based on the turn a profit earned on the sale of a property. There are many rebates applicable to taxpayers nether LTCG.

Tips to salvage taxation on belongings sale:

Based on sure circumstances you lot tin salvage taxation on belongings sale together with about of the options that are available are –

Section 54

Section 54EC

Section 54F

Type of property

Residential property

Any long-term asset

Plot/land apart from residential house

Holding period

Above 2 years

Above 2 years

Above 2 years

Who tin claim an exemption?

Individual/HUF

Any person

Individual/HUF

Net belongings to live acquired

Residential house

Notified bond

Residential house

The fourth dimension bound for novel investment

Purchase belongings inside 2 years or 1 twelvemonth earlier selling together with iii years for construction

Within vi months

Purchase belongings inside 2 years or 1 twelvemonth earlier selling together with iii years for construction

Exemption amount

The uppercase attain or investment inward a novel property, whichever is lower

The uppercase attain or investment or investment inward the novel belongings whichever is lower (max upwardly to fifty lakh)

(Cost of novel home ten uppercase gains)/net consideration

  • Exemption nether Section 54: Exemption is applicable for individuals or HUF (Hindu Undivided Family) who sell their former belongings to buy a novel one. As per the recent amendment, 2 residential properties tin live exempted lifetime nether department 54 solely if the LTCG does non top INR 2 crore inward example of structure or repurchase. To claim exemptions nether Section 54 the next criteria should live met –

      • The belongings should live a residential home together with should autumn nether LTCG.
      • The seller tin ain whatever issue of properties.
      • The seller should buy a novel home inside 2 years subsequently the sale of the former belongings or earlier a twelvemonth of selling the former property. In example of construction, a 3-year fourth dimension is given.
      • The novel home purchased should live inward India.

Within iii years if you lot sell the novel home purchased the exemption volition live reversed together with the sale of the novel belongings volition live taxed nether STCG.

  • Exemption nether Section 54EC: The seller who sells the edifice or country together with invests that coin on specified bonds inside vi months of the sale of a belongings tin avail exemption nether department 54EC. National Highway Authority of India, Rural Electrification Corporation, together with Railway Finance Corporation are about of the specified bonds nether department 54EC. A maximum of INR fifty lakhs tin live invested together with 5.25% is the involvement earned annually on these bonds. This bond is locked for v years.
  • Exemptions nether Section 54F: Exemption is applicable for people who sell their country or plot to buy a novel one. Only 1 residential belongings tin live exempted nether department 54F. To avail exemptions nether Section 54F, the next criteria should live met –

 

      • The belongings should live inward India.
      • The seller should non ain to a greater extent than than 1 belongings (other than the novel one).
      • The seller should buy a home earlier 1 twelvemonth of selling the plot or inside 2 years subsequently the sale of land. In example of construction, a 3-year fourth dimension is given.

Within iii years if you lot sell the novel home constructed or purchased the exemption volition live reversed. In example if you lot buy about other residential home inside 2 years or build a home other than the novel home inside iii years of the sale of the master copy asset thus the exemption volition live reversed. The sale of the belongings volition live taxed nether LTCG.

  • Invest the uppercase attain inward Capital Gain Account Scheme (CGAS) – If you lot are non able to buy a suitable home or build or non able to discover a suitable bond thus you lot tin invest inward CGAS of world banks for that assessment year. While filing income taxation returns you lot tin claim exemptions for coin inward CGAS. However, the deposited sum inward CGAS should live utilized inside iii years, or else you lot volition live taxed for that amount.
  • Set off losses together with acquit frontward – To cut taxation liability the seller tin demonstrate a loss from other assets similar gilt or stock instead of belongings sale together with acquit frontward it for four years or viii years.

Even if you lot invest inward about stuck projects together with the developer is non able to render you lot possession on the promised appointment you lot are yet eligible to claim taxation exemptions nether the sections mentioned above.

Source : https://www.magicbricks.com/blog/tips-to-save-tax-on-the-sale-of-residential-property/119669.html