24-Jan-2024 Ways to reduce Tax on Sale of House property
#propertysale #realestate #legalcompliance #taxexemptions #investmenttipsReady to sell your home? APMH's quick guide is here to make tax talk simple. Learn about long-term gains, short-term gains, and the secrets to legally save on taxes. Your house, your money—get the lowdown with APMH for stress-free selling!
Introduction
• With the rising number of real estate transactions and moving population, it is of high concern for most of us to know about the tax implications on the sale of House property.
• Due to increasing complexity in tax structure, it becomes difficult to keep an eye on all the compliances and as well as its applicability. Thus, due to a lack of awareness of the benefits the tax regime allows us, we end up paying more taxes.
• Thus, at APMH we have summarized that if a person sells a house property, what are the tax implications and ways to reduce taxes legally as allowed under the Income tax act and save hard-earned money.!!
Q. What’s Capital Gain and its Types of Capital Gain regarding Residential House Properties:
A. When any capital asset (here residential house property) is sold then capital gain arises and there is income tax on such gains.
There are two types of Capital Gain depending on the period of holding the asset:
1. Long Term Capital Gain:
When a residential house property that is held for more than 24 months, i.e. 2 years, is sold then it is Long Term Capital Gain.
2. Short-Term Capital Gain
When a residential house property which is held for less than 24 months, is sold then it is Short Term Capital Gain.
Capital Gain is calculated as under:
| Particulars | Long Term Capital Gain | Short Term Capital Gain |
| Sales Consideration | Actual Consideration – *Deductible expenses | Actual Consideration – *Deductible expenses |
| Less: *Indexed Cost of acquisition / Cost of Acquisition |
Cost of Acquisition * CII of year of sale / CII of year of purchase |
Cost of Acquisition |
| Less : *Indexed Cost of Improvement |
Cost of Improvement * CII of year of sale / CII of year of improvement |
-------- |
| *Exemptions | Investment made | -------- |
| Capital Gain | Long Term Capital Gain | Short Term Capital Gain |
*Indexed Cost of Acquisition / Improvement
The cost of acquisition and improvement is indexed by applying CII (cost inflation index). It is done to adjust for inflation over the years of holding the asset. This increases one’s cost base and lowers the taxable capital gains.
Tax on Such transfer
Long-term Capital gain - 20%
Short-Term Capital Gain - Normal slab rate
Exemption benefits available for the Sale of Residential house property to save taxes are as under:
| Particulars | Section 54 | Section 54EC |
| Applicable to | Resident Individual or HUF | Any assesses |
| Transferred asset | Land or building or both | Land or building or both |
| Type of Transferred Asset | Long Term Capital Asset | Long Term Capital Asset |
| Investment to be made | Residential House Property | Bonds issued by National Highway Authority of India (NHAI) , Rural Electrification Corporation Limited (RECL) etc. |
| Maximum Amount Exempted | Amount Invested (subject to Capital Gain) | Cost of new asset x Capital Gain / Net consideration (maximum up to the capital gain)
*For Section 54EC maximum amount of investment Rs.50lacs |
| Lock in period for new asset | 3 Years | *For Sec54EC: lock in period is of 5 years |
| *Capital Gain Account Scheme [CGAS] availability | YES | NO |
*Capital Gain Account Scheme – There may be any taxpayer who is unable to re-invest the capital gains in modes as specified in the Act before the filing of return of income or before the expiry of time to invest the gains. To address this, to enable the taxpayer to park his funds till they are invested for the prescribed purpose, the concept of Capital Gains Account Scheme (CGAS) was introduced. They can deposit such gains which are not able to deposit under the said account in any Schedule Banks.
There are a few Additional Terms and Conditions for availing the above benefits.
| *T & C | Section 54 | Section 54EC |
| 1 | Purchase of another Residential Property within 1 year before or 2 years after the transfer of the Property sold | Investment to be made within 6 months from the date of transfer |
| 2 |
Construction of a Residential house Property within a period of 3 years from the date of transfer/sale of property Provided that new property shall not be transferred within 3 years and if sold then exemption shall be reversed. |
If new asset is sold within 5 years, amount earlier exempted under this section will be reduced from its COA to calculate capital gains thereon |
3 |
If Capital gain is less than or equal to Rs. 2crores then two residential properties can be purchased. This exemption can be availed once in a lifetime
| Section 54EC: Bonds issued by following organisation are eligible for exemption. 1. NHAI 2. IRFC 3.PFC 4.RECL |
4
| If the cost of new asset exceeds Rs. 10 crores, the amount exceeding Rs. 10 crores shall not be considered for exemption. | ------ |
TDS compliance to be observed by the purchaser of the Residential House Property: -
Section 194IA
When a buyer buys immovable property (i.e., a building or part of a building or any land other than agricultural land) costing more than Rs 50 lakhs, the buyer has to deduct tax at source (TDS) at the rate 1%of the total amount, when the buyer pays the seller.
Taxation for NRIs
For NRI whenever Residential House property is sold in India following are the tax implications:
| Particulars | Long Term | Short Term |
| Tax Rate | *20 % | Income tax slab rate |
*Rates plus surcharge and cess if applicable.
NRIs can also take benefit of the exemptions provided above i.e., under sections 54 and 54EC
These are the ways to grab benefits provided under Income tax laws and reduce your income tax liabilities.!!!
Thank you Readers for your Time and Attention. If you have any questions or suggestions, please don't hesitate to reach out on info@apmh.in. Your input is invaluable.
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