Know the full details of Capital Gains Tax, Indexation and Exemption on your property sales

Know the full details of Capital Gains Tax, Indexation and Exemption on your property sales

 

Those who have sold or are thinking of selling their property need to know how much tax liability is made on the profit from the sale. The Income Tax Department can also send you to notice. It is calculating and suggesting ways to save tax.

 

Taxes are calculated in two ways on the profit from selling a house. If you have sold the house after keeping it for two years, then it will be considered as a long-term capital gain. But if you have sold the house before 24 months, then it will be considered as short term capital gain. Long Term Capital Gain charges only 20% tax.  There is no way to save tax on this, as it will be treated as your additional income and tax will be calculated according to your slab. If your final tax liability is created after all types of investments, then you can invest the amount of long-term capital gains in life insurance, mediclaim, PPF etc. Also, there will be a benefit of indexation relative to inflation.

 

Explains how tax is calculated on capital gains. Before calculating the tax on Capital Gains, you have to know how much you have benefited from the total Capital Gains. It is very easy to calculate the advantages in the sale of general goods. The difference between the number of purchases that you have bought and the amount you have sold, and the benefits are known. In the case of Capital Gains, this method differs slightly. To extract capital gains we cover three things.

 

How much of our income actually increased by selling property. The amount you get for selling a property, often the whole does not increase your income. There are already some expenses in the process of selling the property. Such as advertisement, commission to agent etc. In this way, the increase in your income is actually known after deducting these expenses. So, first of all, you withdraw this amount.

 

How much is the amount spent to buy the property today? When you bought the property, at that time you paid for it. How much was spent in buying it, registry, stamp duty, commission etc. Connecting everything takes away the entire cost. By indexing this total expenditure, we find out how much value it would have had in today's date. If there is some cost in the property later, then indexing it and taking its value according to today. By adding all these items, we take away our total cost on the property. Use indexation only if there are cases of buying and selling property in different financial years. Because every year the government issues a new index on property prices, which is somewhat higher than the previous year. Indexation may not apply if the issue of buying and selling has occurred during the same financial year. Because both events occurred during the implementation of the same index.

 

How much did Capital Gain benefit from the deal? The two things that came out in front of us in the first two stages were 1. The real income you got from selling the property 2. Real costs imposed on the property so far. Now we reduce the Real Costs imposed on the property from the Real Income incurred by selling the property till now. The amount that came out will be our Capital Gain.

 

Tax calculation on capital gains, capital gains as a part of your total income. So now you have to do that what you have earned as Capital Gains, connect it with all your other Incomes. Now, if all the money left out remains taxable after-tax exemptions and deductions, then you have to pay tax. How much tax will be made depends on the tax slab rates applicable to you.

 

Tax can also be saved by applying the amount of profit under section 54 of the income tax to buy another house. This rebate will be available on buying a second ready move home within two years of the sale. If you have bought a second house even before one year of selling the house, then it will also get a discount. If this amount is not more than two crores, then you can use it in buying two houses. This facility is available only once.

 

If you build a new house within three years from the sale, you can save tax by including long term capital gains in its cost. However, it must be ensured that possession is achieved within three years. Newly purchased property cannot be sold for three years otherwise the rebate taken will be added to your income.

 

Investments in government fixed bonds within 6 months from the sale can also save tax. One can invest in capital gains bonds of NHAI, Rural Electrification Corporation, Railway Finance Corporation etc. You can invest up to 50 lakhs in a financial year and the lock-in period will be 5 years. During this time they cannot be redeemed or pledged.

 

Another important thing is that even if you get two-three years to invest the profit from the sale of the house, it will have to be given in the ITR to be filed after the sale. Keep the above things in mind and keep your capital gains tax management right so that you get maximum.


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