Skip to main content

Manage your tax when selling property

Selling a property has tax implications. Since the potential gains from a property sale can be high, the subsequent tax paid on it could be high as well. Similarly, purchasing a property can also lead to potential tax benefits. The benefits related to the repayment of a housing loan are well known. However, what needs to be kept in mind is that the tax benefits depend on the holding period and one needs to match the benefits with the holding period to ensure no higher tax liability arises in future.

Sale of property

The sale of property is a taxable event owing to potential gains from the sale. That's because when this transaction is completed the individual is no longer the owner of the property.

Two main aspects need to be considered when the sale of the property is undertaken. The first deals with the calculation of the quantum of the gains that have been earned on the property as this would directly impact the tax to be paid. The time period of the holding becomes vital here because it is used for the classification of the gains into short term capital gains or long term capital gains. The second aspect deals with the tax deductions that have been taken for the purpose of the repayment of the housing loan. If the holding period of the property does not cross the specified time limit then these deductions might have to be reversed.

Capital gains: Short or long?

The holding period is significant for the purpose of determining the nature of capital gains earned on the sale of property. Short- term capital gains is applicable if the holding period is less than three years. These gains are added to the income of the individual and then taxed at the applicable rate. This could very well mean you may have to end up paying the highest marginal tax rate at 30 per cent plus cess. Most people would end up paying this rate of tax on their short term capital gains.

On the other hand, long- term capital gains are taxed at 20 per cent plus cess with the benefit of indexation, reducing the overall tax burden considerably.

This means that the individual has to hold the property for a minimum period of three years to ensure that the gains from the transaction qualify as long- term capital gains and the lower rate applies. But even this tax can be avoided if the individual reinvests the capital gain amount in another property or in specified bonds within six months from the date of sale.

Those who cannot immediately purchase another property can park the amount earned by selling the property in a Capital Gain Account Scheme ( CGAS) in any nationalised bank within six months of selling the property. This amount must be used for buying a new house within two years of parking the amount in the account or used for constructing a new house within three years of parking the amount in CGAS.

Benefit for repayment of housing loan

The Income Tax Act allows an individual to take the benefit of deduction on the interest and capital paid on the Equated Monthly Instalment (EMI) to the financial institution on the housing loan. The amount under these heads is totalled for the year and the individual can take a deduction under different sections. The interest portion is available for deduction under Section 24 while the repayment of capital is available for deduction along with the other eligible investments under Section 80C.

However, if an individual takes the benefit under Section 80C, he needs to ensure that the house property is held or owned for a specified time period; else the benefit will have to be reversed and this would end up affecting the past years for which deduction has been claimed. What is important to note is that the time period for holding under this section is five years, which is two years more than that specified under the capital gains provisions.

This means a benefit claimed under Section 80C may be reversed in the year in which the property was sold, if the time period of holding the property is less than five years from the date of purchase. Individuals need to plan ahead in order to avoid this kind of situation and ensure the holding period is achieved. If they plan to sell the property earlier, then it is better that they do not take the benefit of the repayment of the housing loan capital.

Conclusion

Individuals need to ensure that the holding period of a property before its sale is at least three years in order that the sale qualifies as long- term capital gains. This is important as the amount here can be quite substantial.

For example, a property is purchased in FY1995- 96 for 20 lakh and sold in FY2012 for 80 lakh. Net gains for the sale work out to 60 lakh but long- term capital gains computed after accounting for indexation benefits amount to about 24 lakh. This bears out the significance of holding the property for at least three years, and avoiding paying short term capital gains tax.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Mirae Asset Emerging Bluechip Fund

Start Saving for Tax 2018 by Investing in ELSS Funds Online HOW HAS THE Mirae Asset Emerging Bluechip Fund PERFORMED?   With a 7-year return of 25.08%, the fund has outperformed both the category average return (18.04%) and benchmark (13.4%) by a wide margin.   Growth of Rs 10,000 vis-a-vis category and benchmark   Mirae Asset Emerging Bluechip Fund   is a mid-cap oriented fund continues its stellar run, clocking another year of outperformance over benchmark and peers—a feat it has achieved every year since inception. The fund manager plies a strictly bottom-up approach to stock selection and keeps risk contained by focusing on larger mid-caps. A year ago, it had stopped accepting lump sum investments and now the fund has also put restrictions on SIP investments—only allowing SIP on the tenth of every month with an upper limit of Rs 25,000.   It has done so to preserve its return profile in the face of mounting inflows and stretched valuations in the mid-cap space. This step should hel...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now