Capital Gains Tax on Property Sales
If you intend to sell your property, you must pay capital gains tax on the profit earned after deducting inflation and the indexed cost of acquisition. However, there are several ways to reduce the capital gains tax on property sales. Read more about tds on sale of property here.
Selling a house is a massive and time-consuming task in and of itself; add to that the fact that you will be taxed on your capital gains and you have a recipe for disaster.When you sell a property in India, the profits you make are referred to as capital gains.
It is entirely up to the person receiving the benefits of a profit from sale whether these capital gains will be taxed, as he can choose to invest them within the time frame specified and avoid capital gains taxation.
You will be taxed on your profit (capital gains), which is the amount you receive after deducting the cost of acquiring (and repairing/improving) the asset from the sale price. These capital gains can be classified as either short-term or long-term.
How to Save on Capital Gains Tax When Selling a Home
Individuals and Hindu Undivided Families aren’t taxed on long-term capital gains from the sale of a home if:
- The capital gains are used to buy or build another house.
- The new house is purchased a year before or two years after the old house is sold.
- The new house will be built within three years of the sale of the old house.
- Only one more house property is purchased or built.
- The property being purchased or developed is located within India’s national borders.
- You won’t sell your new house for three years after you get it.
- If the cost of the new property is less than the sale price, the exemption is only proportionately applicable. In less than 6 months, the remaining funds can be re-invested under Section 54EC.
The Capital Gains Taxation Scheme
If you are unable to build a house immediately after receiving a capital gain (but intend to do so in the near future), you can deposit the profit amount in any public sector bank under the Capital Gains Account Scheme (CGAS). If you do this, you will have three years to get your ducks in a row and begin construction on your property. Otherwise, the capital gain will be taxed as a long-term capital gain at 20 percent plus a 3 percent cess.
You can deposit your money in two types of accounts under the CGAS scheme: savings deposit accounts (called Type-A accounts) and term deposit accounts (called Type-B accounts). Type-B accounts can earn either cumulative or non-cumulative interest. You can transfer funds between the two accounts by paying the fixed fees, but you can only withdraw funds from Type-A accounts if you submit a declaration that the funds will be used to build a house within 60 days. Any funds that have not been used must be re-deposited. Also know more about tax deducted at source here.