Looking forward to sell your property? Save yourself from paying long term capital gains tax on sale of property in India
Generally people don’t realise that they need to pay tax on the profit they have earned on sale of their house property which unknowingly makes them non-compliant with income tax guidelines. But at the same time without filing capital gains tax on sale of property, you can save these gains tax.
What is capital gains tax?
A capital gain is the growth in the initial value of investments of an individual and corporations. Capital gains are subject to its realisation. When assets are sold and you have received your “Principal amount” plus “appreciation” then they are being termed as realised profits and are now subject to capital gains tax. The capital gains tax on sale of property is not subject to unrealised capital gains.
STRATEGIES THAT WILL HELP YOU AVOID PAYING CAPITAL GAIN TAX ON SALE OF HOUSE PROPERTY
Almost every tax payer finds it difficult to effectively manage their taxes and ultimately end up paying higher taxes instead of saving them. This is because of they are not aware of the ways that will easily help them to park their funds and save taxes. Here in we will discuss how you can avoid paying capital gain tax on sale of house property:
1. Investing in some other house property
Most of the times investors sale out their property with the purpose of re-investing in some other property, this will not attract any capital gains tax till the time that amount is invested in your new property. Capital gains tax liability will arise at the time of sale of this new property.
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In context of long term capital gains tax on sale of property in India, claiming income tax exemption is a bit tricky but, if you invest this capital gain to buy a ready to move in house within two years from the date of selling the existing property.
[Note: If the house was purchased before the date of sale of the house but not beyond one year from sale date, in that case you can still apply for exemption of long term capital gains tax on sale of property in India.]
2. Purchase of specified bonds
By investing the proceeds from sale of property in bonds of some specified financial institutions like National Highway Authority (NHAI), Rural Electrification Corporation (REC), and Railways Finance Corporation (RFC) etc. you can dodge long term capital gains tax liability legally. This transaction must be within a period of six months from the date of sale of property.
The bonds have a tenure ranging from 5 to 7 years during which the bonds can be redeemed for availing any facility failing which the exemption gets reversed. These bonds earn you 5.25% interest annually. The interest received on these bonds is fully taxable in your hands but the maturity proceeds of the bonds are fully tax-free.
However, there is minimal or no restriction on a taxpayer claiming exemption under both these options in respect of sale of the same house.
3. Capital gains account scheme
Most of times it is not possible rather its very rare that sale proceeds from on property is re-invested immediately into other asset; but the liability of capital gains tax on sale of the property rises immediately, so how to effectively manage these funds for the time being to not pay any tax?
Well if you’re planning to re-invest that amount in sometime near future then you can park these funds in capital gains account scheme and be eligible to claim exemption of long term capital gains tax on sale of capital assets.
As the real-estate is talk of the town and both the sale & purchase in real-estate have seen a boom with the ease in lockdown, so arises the need to effectively park the funds in most profitable place. To get consultancy from income tax experts, chartered accountants & legal experts then write to us at email@example.com, call us at (0120) 4231116 or visit our website CAonWEB and fill up the query form and our experts will get in touch with you;
Chartered Accountant by profession, CA Sanket Agarwal has an experience of above11 years in Cross Border compliance , Import Export , International Taxation & is a passionate content creator.