How To Save Tax When Selling Your Home

Selling your ready to move in apartments is not easy. Not only does it bring an emotional upheaval but also requires you to do some brainwork in terms of tax calculation. Whenever you sell your home in any residential projects in India, there are numerous tax implications that you need to bear in mind. The taxes applicable on property sales are usually on the profits incurred from it.

Taxes payable within three years of acquiring property

If you sell a particular property within three years of acquiring it, you need to pay taxes like short-term capital gains tax or STCG. This tax would be applicable at the income tax slab rate after adding profit to the income for the year. A work around for this problem would be to calculate the short term capital gains tax when the property is sold after deducting the amount spent on repairing the property and the cost of acquiring the property such as brokerage fees, legal fees and stamp duty. This is applicable for long-term capital gains tax as well.

What happens when the property is owned for more than three years?

If a particular property is held for more than three years, long-term capital gains taxes or LTCG is payable on it. The tax levied on it is at 20%, along with CESS and surcharge after adjusting capital gains for inflation using the cost inflation indices issued by the government.  If you had been gifted the property or inherited it, the capital gains shall be calculated on cost basis accrued to the previous owner. If the property had been bought prior to April 1, 1981, then the Income Tax Department shall consider acquisition cost incurred by the actual owner or the property’s fair market value as it was on April 1, 1981. The higher amount shall be considered.  

If you sell a under construction property in India after owning it for more than three years, then the tax rules are completely different. The Income Tax Department considers a person to be a true owner when s/he has been given possession of it.  

How do you save taxes on selling a home?

You can save the entire tax amount accrued if you use the proceeds equivalent to LTCG for purchasing a new apartment in India or any other immovable property situated in India within a year before the sale date or two years from the date of sale. If the flat is in an under construction project in India, then the time period is extended to three years. The sum used for purchasing the new property shall be exempted from taxation. In case there is some money left over, it will be taxed at 20% flat with CESS and surcharge. If you are not immediately purchasing property, then you need to keep the money in a Capital Gains Account Scheme and withdraw the money within a pre-determined timeframe.  

If you are not interested in buying a property, you can save LTCG by investing it in specific bonds issued by the Rural Electrification Corp or NHAI under Section 54 and 54EC within 180 days from the sale date. The bonds usually have a three year lock-in period. Also, you can invest up to Rs. 50 lakh in bonds while tax has to be paid on the leftover amount.