Here is how you can save long-term capital positive factors tax on actual property

Capital positive factors made on promoting an actual property property attracts 20% tax if the property is held for 3 or extra years. For properties held for the quick time period, positive factors are taxed as per slab charges. Given the quantum of actual property property belongings, the tax outgo on capital positive factors could be fairly excessive.

However, earnings tax (I-T) legal guidelines permit taxpayers to avail exemption on capital positive factors made on the sale of a property by reinvesting the proceeds in sure belongings.

“If a taxpayer sells a property and reinvests the proceeds in specified belongings inside the specified timeframe, he can declare capital positive factors exemption. However, exemption is just allowed in case the acquire arising is long-term capital acquire (LTCG). No exemption shall be allowed in case the acquire is short-term capital acquire (STCG),” stated Karan Batra, founder, charteredclub.com.

Investing gainsin residentialpropertyUnder Section 54 of the Income Tax Act, a person or HUF (Hindu undivided household) can use the capital positive factors booked from the sale of a property to buy or assemble one other residential property to get exemption on tax on capital positive factors. Just the capital positive factors have to be reinvested and never your complete sale proceeds. Further, taxpayers can make investments capital positive factors in two home properties. The circumstances are that capital positive factors shouldn’t exceed ₹2 crore and the taxpayer can train exemption on two properties solely as soon as.

There are extra circumstances to avail exemption on capital positive factors below Section 54. Capital positive factors needs to be invested in a residential property positioned in India and the brand new buy needs to be made inside one 12 months earlier than or two years after the sale of the property whose capital positive factors should be reinvested. If the capital positive factors are used to assemble a home, development needs to be accomplished inside three years from the sale of the property. Also, the brand new property wherein capital positive factors are invested shouldn’t be bought earlier than three years from the date of buy, failing which the exemption claimed will likely be taxed within the 12 months the brand new home property will likely be bought.

The quantity of capital positive factors that may be exempted from tax would be the decrease of capital positive factors made on sale of property and the quantity of positive factors invested in a brand new residential property.

For occasion, if the capital positive factors made on the sale of a property is ₹50 lakh and the brand new property is purchased for ₹40 lakh, ₹40 lakh will likely be exempted from tax. The taxpayer should pay long-term capital positive factors tax on the steadiness ₹10 lakh.

Investment inspecified bondsSection 54EC permits exemption on capital positive factors made on the sale of any immovable property by investing the proceeds in authorities specified bonds.

This exemption is on the market solely on long-term capital positive factors made on a property and a most of ₹50 lakh could be claimed as exemption.

Bonds eligible for exemption are issued by Rural Electrification Corp. Ltd, National Highway Authority of India, Power Finance Corp. Ltd and Indian Railway Finance Corp. Ltd.

To avail exemption below Section 54EC, the taxpayer ought to make investments the positive factors inside six months of the sale of the property. Take word that these investments can solely be redeemed after 5 years.

“In case the place the funding in bond is transferred or transformed into cash or if the assessee takes a mortgage or advance on the safety at any time inside a interval of 5 years from the date of its acquisition, the quantity of capital acquire exempt below Section 54EC shall be deemed to be long-term capital acquire of the earlier 12 months wherein the long run specified asset is transferred or transformed into cash,” stated Batra.

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