Saving Tax on Property Sale: Is It Possible?

The immovable assets not only provide physical safety followed by security but also serves up as an investment avenue. 

Because the property sale leads to profits for the owner, the Indian IT laws treat the advantages as the taxes are accordingly. Before figuring out how to save taxes, we must look into the factors that govern the tax liability of the property seller. 

Tax Liability According to the Holding Period

If the selling of the property in India happens after a holding period of 24 months, the profits are seen to be long term capital gains. The computation of long-term capital gains is done by slashing the indexed house cost from its net sale amount. If you do not happen to have any other income, or in case your income isn’t up to the taxable limit, then the taxable capital profit will be brought down by the amount by which other of your income falls short of the standard exemption limit. 

What Happens If the Property is Sold Within 24 Months?

In terms of the house getting sold within the hold period of 24 months, the profits are seen to be as short-term capital profits and there is no scope to save yourself from paying tax on such profits. Such short-term capital profits are treated like most other regular income and are added to other income. You would have to pay tax if your inclusive the short-term profits, your taxable income is more than 2.50 lakh. For individuals over 60 years and below 80 years, the limit of exemption is Rs. 3 lakhs. And for individuals over 80 years, there is no liability if his overall aggregate total does not go beyond 5 lakhs. 

Buying Another Residential House is Key to Evade Tax

In regards to long term capital profits on the sale of a residential property. You can have your exemption claimed from tax if you are using the taxable long-term capital profits to buy a ready to move in property within a couple of years post the sale of the house. The exemption for ready to move in property is still available if the house bought before the sale date of the property but not beyond a year from the date of sale. 

This exemption is available in regards to investment on one residential property in India, however, the income tax laws lend you once in a while scope to dole out on the long-term capital profits on a house, in 2 houses to have the exemption claimed on long term capital profits occurring on one house. 

Investing in Particular Bonds

The second scope to save yourself from paying tax on long term capital profits is buying capital gains in bonds of some particular financial institutions like NHA, REC, RFC, etc. with 6 months from the sale date. The bonds have a uniform five years tenure during which you can redeem points or mortgage points for accessing the facility, upon whose failure the reversal happens of exemption. 

It can be said that investments in two of the cases have to be made even if you haven’t received consideration for the sale of residential property. Another point of consideration is that you must keep in mind that you cannot give more than 50 lakhs in these bonds annually and in terms of capital profit transaction. However, there isn’t any limitation on a taxpayer claiming for exemption under both the conditions in regards to the sale of the same property.