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Want to save tax on long term capital gains on sale of property, Here’s how

If the entire amount of the capital gain is used to buy or build a new property, the gains can be completely exempt.

The days when families lived in the same house for decades or generations are long gone.In the urban world of today, it is very common to move around a lot in one lifetime.

To upgrade one’s lifestyle, it is now necessary to sell one home and buy another. While going through such a transition, savvy customers frequently profit from the sale of their homes. Long-term capital gains (LTCG) are the result of these gains.

Long-term capital gains are basically the profit made when a house is sold after being owned for at least two years.

This profit is subject to 20 percent capital gains taxation under the Income Tax Act. The provision of Section 54 of the Income Tax Act can be utilized to minimize, or in some cases, eliminate, the tax owed on long-term capital gains.

If the entire amount of the capital gain is used to buy or build a new property, the gains can be completely exempt. The money can be put toward building a new home or buying an existing one that is ready to move into.

Booking a property that is still being built is also regarded by the individual as similar to building a house. Investment in a house that is ready to move into is allowed within two years of the sale, when capital gains are earned.

However, even if the new home was bought a year before the old one was sold, you can still qualify for a long-term capital gains tax exemption.

In addition, if the investment for exemption is made in a property that is still under construction, the exemption can only be claimed if the property’s construction is finished within three years of the earlier house’s sale.

The exemption can be claimed until the building is finished in three years or possession occurs within three years if the construction of the house began prior to the sale of the residential property or if another residential property was booked prior to the sale of the residential property.

Importantly, Section 54’s long-term capital gains exemption only applies if the investment is made in India and only in residential real estate, and the new property cannot be sold before three years have passed since it was taken into possession.

Investing long-term capital gains from the sale of a residential property in capital gains bonds issued by assumed institutions was an alternative strategy for avoiding tax on these gains. The National Highway Authority of India, the Railway Finance Corporation, and the Power Finance Corporation Limited were the organizations that had been providing this service.

There is a period cutoff to these ventures too and the bonds should be obtained in the span of a half year of the day the property is sold. The maximum amount that can be invested through this method is also limited, and the interest rate ranges from 5% to 6% with a lock-in period of five years.

Because of the high rate of returns, real estate has always been the investment of choice for Indian consumers. When the beneficiary is aware of ways to reduce their tax burden, gains from real estate transactions can be maximized.


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