Orchard 126 HIRA Registration No. - HIRA/P/NOR/2018/000236

Posted On April 8, 2019

How To Save Taxes On Selling Property

How To Save Taxes On Selling Property


Selling property is one of the most lucrative means of making money quickly. This is because property appreciates much faster than any other commodity. Hence, you can make massive capital gains on the sale of your property. This is also how real estate builders in Kolkata have made lucrative profits. The only other commodity that will get you good returns like this is gold.



Keeping this important factor in consideration, the Government has now decided to tax people’s capital gains from property. This has been done with the aim of not making it unfair for others who have no means to expand their wealth in this way. It also helps to keep a sense of balance in society.



This article helps you solve this problem and look at it in a different way. Here we give you various tips and guidelines that are within the legal framework and can hold you in good stead should you decide to sell your property in the near future. After reading it, you will be in a much better position to make an informed decision that will help you to save a lot of money.



Read on to find out how one can save taxes on selling a property and retain the money for posterity.



1.     Rates of Taxation



The moment you sell your house is called as the date of sale. You will be taxed for short-period capital gains if the time that has passed from the sale of your house is less than three years. This is generally done at the marginal tax rate.



If more than three years have passed since the sale of your house, then you will be taxed for long-period capital gains. The rate of taxation in this case, will be 20%. So the amount of time that has elapsed since the sale of your house is very important while the taxation rate is being decided by the Government.



2.     Benefits of Indexation



There will be many benefits that you can take from indexation. This shows that if you have a property that was bought at 2 lakhs and is now valued at 60 lakhs then your taxation amount is not 58 lakhs. This is because you will be taxed based on the index that is present in the respective years of purchase and sale.



Let us see how this works. Firstly, you will have to calculate the indexed cost of acquisition. For this, you need the index in the year of sale and the index in the year of purchase. The ratio of these two indices is then multiplied with the purchase price. This will give you the indexed cost of acquisition.



Surprisingly, the amount of taxation that you pay may be much lower than you thought. In fact, in this case, it may be as low as 10 lakhs as an approximation. This makes it very clear that the Government also has the property seller’s welfare and interest in mind. It just wants its rightful due.



3.     Reinvest in a New Property



Section 54 of the Income Tax Act gives you the liberty of investing in another property of the same value so that you can save a considerable amount of money on taxation. However, there are certain conditions that must be met while you avail of this benefit.



The first condition is that this facility is available only for an individual or a Hindu Undivided Family. The second condition is that you must only invest in residential property and not in any other kind of asset. The third condition is that you must reinvest in your second home within three years of the sale of your first home. The fourth and last condition is that this exemption will be applicable to only one residential property. You can look for flats in BT Road Kolkata where you can reinvest this amount.



Another thing you must keep in mind is that you cannot sell the second house that you have reinvested in within a time span of three years. The final point to be noted is that the exempted amount will be the lesser of the capital gains from the first house and the amount that has been invested in your second house. You cannot choose any one of them on your own.



In the unfortunate case that you sell the second house in less than three years from the date of its purchase or the date that the construction is completed, then you will not be eligible for this exemption and the entire amount that you have made capital gains on will be taxed. Hence, you must not make this costly blunder. This will help you save money.



The real estate sector in India is ailing and the Government is doing its best to increase its allure among the masses. This is why the holding period for property or land has been reduced from 36 months to 24 months. This is how immovable property will now be considered as capital assets for the long term.



The best way of utilizing the money gained from property appreciation of your new house will be to deposit it in a public sector bank under a Capital Gains Account. You can buy a new flat or build your new home after withdrawing this amount within the time limit that is specified.


4.     Particular Government Bonds



You can also invest in particular Government bonds in order to get a tax exemption. This provision is given as under Section 54 EC of the Income Tax Act. However, these bonds must only be of Rural Electrification Corporation (REC) or National Highways Authority Of India (NHAI). You must make this investment within six months of the property that you have sold. The upper limit for investing in these bonds is Rs 50 lakhs and your bonds will mature after a period of three years.



The Government has also aimed to help people even more by including a clause in the Finance Bill of 2017. This states that these investments can be made on any of these above-mentioned bonds that are redeemable in a time span of three years and all those bonds that the Central Government notifies. You can get an exemption on even these investments and save a large portion of your money in an easy way.



From the above, it is clear that there are many ways in which you can save taxes while selling the property. All you need to do is follow the above-mentioned tips and guidelines that will help you in doing this in the most effective way. You can ponder over upcoming real estate projects in Kolkata that will help you get a more varied choice of charming residences.



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