Can You Really Save on Tax When Selling Your Property?

No other product appreciates in value than Real Estate property, which makes it the most bankable option for earning quick money. Property sales fetch capital gains to an extent such that the Government has decided to levy a tax on it. The move aims at being fair to those who don’t have any scope for accumulating wealth through this way.

We have come up with suggestions that are in accordance with the legal structure and will prove beneficial to you whenever in future you sell your property. Staying informed about these guidelines will let you save on the expenses arising from the payment of taxes by making the right decisions.

Updated Criteria for Capital Gain Taxation

As decided in the Union Budget 2019, the eligibility of short and long term capital gains from the sale of a property has changed slightly from the previous 3-year benchmark.

Now onwards, a property that is sold within 2 years of your ownership will qualify for short-term capital gains to be charged with a marginal tax of up to 30 per cent apart from the surcharge and cess extended to 15 and 3 per cent, respectively.

Your property becomes eligible for long-term capital gains subject to taxation at 20 and 10 per cent with and without indexation benefit, respectively, when you have owned it for 2 or more years before selling.

Thus, you can clearly understand the time interval feasible for selling your property so as to be charged the relatively lower tax rate.

Indexation Advantages

Say, the price of the property that you had bought at 2 lakh rupees has now appreciated to 60 lakh rupees. Indexation benefit will charge tax according to the indices in the year of purchase and sale, respectively, and not consider 58 lakhs as the taxation amount. A ratio of these two indices when multiplied with your buying price, gives the indexed cost of acquisition to which the benefit is applied and the taxation amount gets surprisingly reduced (approximately 10 lakhs in this case). Keeping the seller’s welfare in mind, the Government only demands its legal due.

Government Bonds Investment

The Income Tax Act makes provision of tax exemption through investment in Government bonds under its Section 54 EC. The bonds are restricted to those of NHAI (National Highways Authority of India) and REC (Rural Electrification Corporation). The time limit for investment is 6 months from the time of the property sale and up to 50 lakh rupees that will take 3 years to mature.

The Finance Bill of 2017 has included a clause to the advantage of property sellers that allows them to invest in redeemable NHAI or REC bonds with attractive interest rates and assured recovery before the end of the maturity period, as well as, in bonds notified by the Central Government. Isn’t this really a cost-effective way?

Investment in a Second Property

The Income Tax Act itself allows a significant concession on taxation of property sale through a provision under Section 54 that allows you to invest in a second property that is worth the same value as the first one. But the advantage is confined to the following conditions that you are required to fulfil.

  • Firstly, the applicant is needed to be a Hindu Undivided Family or an individual.
  • Investment is restricted to residential property only.
  • The time for investment in a second home is limited by a span of 3 years after the property has been sold.
  • The tax exemption can be availed for a single residential property within a lifetime, and only on the amount which is lesser between the second home reinvestment amount and the capital gains earned from the house sold.
  • Lastly, the property you reinvest in cannot be sold for 3 years from its purchase otherwise you will be the one to lose money. Selling the house within 3 years from the date of its construction completion or purchase doesn’t qualify you for the tax exemption and thus, you end up paying tax for the whole amount on which you earned capital gains.

The reduction in the holding period for property from 3 to 2 years aims for making the country’s ailing Real Estate industry attractive to the masses. The immovable property too will be counted among the long-term capital assets.

For optimum utilization of money earned as capital gains from the sale of your property, deposit it in the respective account in a public bank so that you can withdraw this amount for purchasing or constructing a new home.

Hope, the reading was helpful. If you have a flat for sale in Kolkata South then do not hesitate anymore since you know now how to curtail the tax on your earnings if acted in the right way. For more of such queries or assistance in selling, buying or renting a property, log onto

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