How To Save Capital Gains Tax On Property Sale?

Tax On Property Sale Kharghar: Property purchases are frequently expensive transactions. As a result, the amount of taxes due on the earnings made could be substantial. Multiple tax exemptions offered by the Indian government to real estate sellers can help them lower and in some instances even completely erase their owing long-term capital gains tax. You can save capital gain tax in the methods listed below with the aid of

Depending on how long you owned the item, taxes may apply during the property sale procedure. The government has implemented several measures that will help to keep the economy’s real estate deals flowing steadily. As a result, capital gains tax is related to real estate deals, especially to the sellers.

Here is a breakdown for you to help you better comprehend it and arm you with information on how to avoid paying such fees.

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Tax On Property Sale Kharghar: What is capital gain tax?

To begin, one must comprehend what financial profits are. These are capital assets, as the term would imply, such as real estate or stocks. Based on the length of time the commodity was held, these profits were further classified as either short-term or long-term.


What is short-term capital gain tax?

The earnings from the selling of the property will be regarded as short-term capital gains if you sell it within two years. These profits are included in your taxable income and charged in accordance with the appropriate income bracket. Short Term Capital Gain (STCG) tax breaks are not offered.



What is long-term capital gain tax?

When a property is owned for two years or longer and subsequently sold for a profit, the profit realized on the selling is regarded as a long-term capital gain. It will be subject to the Long-Term Capital Gains (LTCG) levy, which is a 20 percent levy.


How can I sell my house and pay less capital gains tax?

Due to the high cost of real estate deals usually, the tax assessed on the sale of a property can be very high. Follow the procedures listed below to attempt and reduce or eliminate the payable LTCG tax:

  • Reinvesting the proceeds from the sale of a house in the purchase or construction of another domestic property is a well-known strategy for reducing tax liability.
  • Making a decision on a home in advance will make it easier to use the funds with little delay.
  • Investing in the 1988 Capital Gains Account Scheme is another method to avoid paying capital gains tax on property sales.
  • Interested parties may establish a capital gains account with one of the authorized Indian institutions.
  • Additionally, sellers can invest their money in capital gains bonds that the federal government has released.
  • This option is available at a small number of public sector banking organizations.




Purchase or construct a residential property

In accordance with Section 54 of the Income Tax Act of 1961, a person selling a residential property may benefit from a tax break on long-term capital profits if they were used to buy or build a residential property. Keep in mind that only long-term financial investments are covered by this exemption. (In our case, immovable properties with a holding period of more than two years).


To qualify for this exemption, the following requirements must be met:

  • A residential property must be purchased by the seller either one year before or two years after the selling of the initial property.
  • Within three years of the date the initial property was sold. If you are building a house with capital gains, the construction of that house must be finished.
  • The brand-new residence must be situated in India.
  • If the recently bought or built property is sold within three years of its acquisition or building, the exemption will be revoked.

According to the Finance Act of 2019, the capital gain exemption under Section 54 is now available for the acquisition of up to two residential homes in India. Starting with the Financial Year 2019–20 (FY 2019–20). Which corresponds to the Assessment Year 2020–21. The condition for this relief is that the long-term financial gain cannot exceed Rs 2 crore. Additionally, a vendor may only take advantage of this exemption once in their lifespan.

The exemption shall be capped at the amount of the capital gain if the investment in the new property surpasses the capital gains realized from the selling of the original property. The leftover capital gains will be subject to a fixed 20 percent tax if the investment in the new property is less than the capital gains realized.


Tax On Property Sale Kharghar: Money is placed in a capital profits account.

It can take some time to find an appropriate property to re-invest your capital gains in. To gather all of the necessary money, and to set up the necessary paperwork. Accordingly, if you have not been able to re-invest your capital gains into a new property until the date of filing your income tax returns. Then you may invest these gains in a ‘capital gains account’ in any of the branches of authorised banks (excluding rural branches of such banks) such as Bank of Baroda. As according to the Capital Gains Account Scheme, 1988. You can use this investment as a capital gains deduction.

In case the deposited amount is not utilised within the specified period of two years (in case of purchase of new residential property) or three years (in case of construction of a new residential property). Then, the deposit will be treated as short-term capital gains in the year within which the specified period lapses.



Invest the funds into capital gain bonds

You can invest your earnings in “Capital Gain Bonds” under Section 54EC of the Income Tax Act if you do not want to build another residential property with the capital gains from the selling of your current one or reinvest them into one. These are one of the most common methods to avoid paying LTCG tax and are also referred to as “54EC bonds.”


Tax On Property Sale Kharghar : A few conditions:

  • One bond worth Rs 10,000 is the lowest investment requirement for 54EC bonds. And a maximum of 500 bonds worth Rs 50 lakh is the highest investment.
  • Only the National Highways Authority of India (NHAI), the Rural Electrification Corporation Limited (REC). And the Indian Railways Finance Corporation Limited are authorize to issue eligible notes under Section 54EC. (IRFC)
  • Since April 2018, these bonds have a five-year lock-in term and cannot be transferred to another individual.
  • The yearly interest rate on 54EC notes is 5%. But this income is taxed.
  • The purchase of these assets must be completed within six months of the property’s sale. The investment must also be made prior to the date for submitting taxes.

The danger element is minimal because the Indian government is backing these bonds. Additionally, they enable you to make interest money and save on taxes.

You can see that the Income Tax Department has given you some fantastic choices for reducing your long-term capital gains tax. Before making such a choice, it would be wise to give your particular financial objectives some thought. You can also discuss such purchases with financial specialists.




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