Skip to main content

Long Term Capital Gains on Real Estate

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

 

 

What does it mean - When you sell a property at a profit, any time three years after purchasing it, the difference between the sale price and the purchase price will be treated as long term capital gains. 

What is the sale value - The sale value will be the amount arrived at based on the valuation as per the state's Stamp Duty and Registration Authority and not the amount mentioned in the sale deed. This is simply to include cases where a part of the sale consideration is in the form of unaccounted cash.

How is Long Term Capital Gains taxed - This gain is taxed at the rate of 20% with indexation. By indexation, we mean that the cost inflation index is adjusted to reflect the increase in prices from the date of purchase till the date of sale. The Cost Inflation Index is issued by the Government and represents the increase in the general price level in the economy. Inflation reduces the value of the property over time and so using the cost inflation index inflates the property value to represent the current value. The capital gains is thus reduced as the purchase price is increased, thus reducing the tax burden of the seller. Note that this benefit of indexation is not available for short term capital gains.

Indexed Purchase Price = 15,00,000*590/280 = Rs. 31,60,714
Long Term Capital Gains = 35,00,000 - 31,60,714 = Rs. 3,39,286
Tax with indexation = 3,39,286*20% = Rs. 67,857

Any cost incurred after April 1st 1981, on improvement of the property can also be deducted (post indexation). This will bring down tax liability further.

How can you reduce/avoid the tax burden - Under Sec 54 of the Income Tax Act, you can claim a tax exemption on the long term capital gains of sale of a house. The gains are exempt from tax if you use the entire profit amount to purchase a new house within two years from the date of sale or construct a house within 3 years. Tax is also exempt if you have purchased a second house within a year before selling the first house. Note that you cannot invest in a commercial property or land for this purpose and the new investment has to necessarily be in a residential property.

Another option to avail tax exemption is under Sec 54(EC), by investing the amount of capital gains in bonds of the National Highways Authority of India or Rural Electrification Corporation Limited for a period of three years. However, this must be invested within a period of six months of selling the house. Further, the maximum amount that can be invested in a year under this option is Rs. 50 lakhs.

What happens if you sell the new house - When you dispose the new house purchased/constructed, the capital gains which have been exempted will be reversed and will again be taxed as capital gains. However, it will be charged as short term capital gains, which is charged at the normal tax slab rates and not the preferential 20% (with indexation) rate.

What happens if you do not invest in a house within the specified time period- If you are unable to invest in another property to claim exemption on long term capital gains, there is another option. You can invest in a separate account in a nationalised bank under the Capital Gains Account Scheme (CGAS) before the last date of filing your return for the particular year. The amount to be invested should be equal to the capital gain if you want to claim exemption on the entire amount.  You must attach the proof of deposit in the account, along with your tax returns to claim exemption. The account can be one of the following two types - either a Savings Bank account or a Term Deposit account. The account carries the relevant interest rate - either the Savings interest rate or the Term Deposit interest rate, as the case may be. The amount deposited should be used only to buy or construct a residential house and failure to do so will result in taxation of the unutilised amount.

We recommend you to consult a chartered accountant to understand the actual implications of long term capital gains on the sale of property.    

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

Leave a missed Call on 94 8300 8300

Leave your comment with mail ID and we will answer them

OR

You can write back to us at

PrajnaCapital [at] Gmail [dot] Com

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

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

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

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. Mid and SmallCap Funds Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap FundsInvest Online

      1. DSP BlackRock MicroCap Fund

2.Franklin India Smaller Companies

E. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

Popular posts from this blog

BHIM App

What is BHIM? BHIM stands for Bharat Interface for Money , which is an easy way of transferring money from one bank account to an other via a smartphone using the Unified Payments Interface (UPI) platform . It is an instant payments application meant for sending money as well as requesting for payments. How is it different from UPI? BHIM is no different than UPI. But in the case of BHIM, customers don't have to download mobile applications of multiple banks, instead a single BHIM app downloaded from Android Play Store is sufficient. Other than that, payments can be made through a virtual payments ID or through account number and IFS code, same as UPI. What you need to use BHIM? BHIM can be used across an droid smartphones with version 4.0 and above, also it will be made available on iPhones and Windows smartphones very soon. Further, for feature phone users they need to use the USSD feature by dial ing *99#. Why was the need for BHIM felt when UPI is already in place? With various...
Read more

NPS for Tax Saving

The NPS is a great way to save tax if you don't mind locking in your money till you retire. Till last year, the taxability of the NPS was a big issue. But last year's Budget changed the rules and made 40% of the corpus tax free. The PFRDA wants that the balance 60% to be exempt from tax as well. The emphasis is on increasing pension coverage. So, allowing EEE status (to NPS ) is our major demand (in the Budget NPS is especially useful for investors who may have exhausted the `1.5 lakh investment limit under Section 80C but want to save more.   Another way the NPS can cut tax is by rejigging the salary.If a company deposits up to 10% of the basic salary of an employee in the NPS under Section 80CCD(2d), the amount will be tax free. Turn to page 28 to see how much tax this can save. However, the take-home pay of the employee will come down. Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax...
Read more

Retirement planning from a long-term perspective

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds     `HOW green was my valley'. This title comes from a movie I had watched many years ago. A little boy's journey into adulthood and the story of a Welsh valley's turn of-the-century descent from pristine paradise to despoiled coal mining.   I thought of the title because it is comparatively reflective of a person's life ­ the glorious years when he is earning and the sun down years when he is not having his regular job and, hence, his living standards comes down. The reason is a combination of things. Inflation of food items, transport, increase in health related costs in the later years of life and increase in expenses in almost all basic amenities of life. In India, the social security system is almost non-existent. In some states, wherever it is available, the scales of benefits are extremely modest...
Read more

SBI Long Term Advantage Fund Series

Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax Saver Mutual Funds for 2017 - 2018 Best 10 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. ICICI Prudential Long Term Equity Fund 5. Birla Sun Life Tax Relief 96 6. Franklin India TaxShield  7. Reliance Tax Saver (ELSS) Fund 8. BNP Paribas Long Term Equity Fund 9. Axis Tax Saver Fund 10. Birla Sun Life Tax Plan Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave your comment with mail ID and we will answer them OR You can write to us at Invest [at] SaveTaxGetRich [dot] Com OR Call us on 94 8300 8300  
Read more

ELSS Funds are Best Tax Saving Option

Equity-linked saving schemes (ELSS) are the best way to save tax in 2017 . The Economic Times assessed 10 tax-saving options on eight key parameters, including returns, safety , liquidity , costs, transparency , flexibility , ease of investment and taxability of income. ELSS funds scored highest, followed by the National Pension System (NPS) and Ulips at the second and third place, respectively . The terrific returns generated by ELSS (CAGR of 18.7% in past three years and 17.46% in past five years) are not the only plus point of these funds. Their costs are very low (2.52.75% a year) and all charges, portfolios and transactions are in the public domain. Returns are tax free because long-term capital gains from equity funds are exempt and they have the shortest lock-in period of three years. Investing in ELSS funds has now become very easy with the launch of the e-KYC facility . The whole process does not take more than 30-35 minutes. The Pension Fund Regulatory and Development Aut...
Read more
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