Looking for effective strategies to save on property sale? In this guide, we’ll explore smart tips and tactics to help you maximize your profit and minimize costs during the selling process.
In India, real estate sales are quite profitable, but there are tax implications too. Wonder how you can save property sale tax after selling any of your property? This is one of the main concerns of a property owner. Well, you may optimize your returns by knowing about the different types of taxes that apply and how to save taxes on your real estate sales. On the profit that you earned on the sale of your property, you will have to pay capital gains tax.
Well, a property seller will have several ways to reduce the tax implications when they sell their residential property. They can either do tax loss harvesting or invest in a new property.
Let’s learn everything about property sale taxes, such as what taxes are applicable on your property sale and how to save tax on the sale of property in India when selling your property:
What Taxes are Applicableon the Sale of Your Property?
In India, capital gains tax is the main tax that you have to pay when you sell a property. But, which capital gains tax will be applicable depends on the type of property it is. Property sales can be of a residential home, a plot, a commercial space, or a piece of land. Here’s the breakdown that you should know
Capital Gains tax for selling property
Capital Gains Tax
This is the main tax that will be imposed on the profit that you get from the sale of the property. This tax is imposed by the government based on how long the owner has owned the property before putting it on sale. In this, the tax applies to the revenue generated by the property seller after selling it.
Capital gains are of two categories:
Long-Term Capital Gains (LTCG)
At present, LTCGs are subject to a tax rate of 20 percent. A property sale that occurs three years after its possession then is regarded as a long-term capital gain.
Along with 20% tax, there will be an additional 3 percent in certain conditions.
Short-Term Capital Gains (STCG)
Taxation on short-term capital gains (STCG) is capped at 15%. A fee or surcharge is not included in this type of taxation. A property is applicable for short-term capital gain if it is sold within 36 months (3 years) of purchase. The buyer’s income tax slab will determine the tax on such gains.
TDS (Tax Deducted at Source) on the sale of property
This tax came into effect on 1st June 2013. In this, the buyer is required to deduct 1% TDS from the sale property sale amount and submit it to the Income Tax Department. This is necessary to do if the property transaction value exceeds ₹50 lakh.
The Indian buyer needs to submit form 27q for the sale of the property. They must do this every quarter before the due date. Whereas, non-resident Indians are needed to pay TDS at a rate of 20%.
There are some indirect taxes also that are borne by the buyer. The buyer of the property needs to pay these taxes to the seller and then submit it to the government. These taxes include service tax, VAT, stamp duty, and registration charges.
By now, you must have calculated the tax that you need to pay after selling your property and you realized it’s a huge amount. So, the question arises- how to avoid tax on the sale of property? Here are a few ways through which one can save tax:
1. Section 54 Exemption- Re-invest money on new property
You can save capital gain tax if capital gains from the sale of a residential property are reinvested in another residential property. This tax is exempt from capital gains tax under Section 54 of the Income Tax Act.
Eligibility
Conditions
Amount of Exemption
Available to individuals and Hindu Undivided Families (HUFs).
The seller must buy another residential property within one year or two years after the sale or construct a new house within three years from the date of sale.
The amount of exemption is either the amount of capital gains or the cost of the new property, whichever is lower
2. Use of Capital Gains Account Scheme (CGAS)
You can claim an exemption by depositing the capital gains in the Capital Gains Account Scheme (CGAS). The property seller can do this if they are unable to reinvest the sale amount before the deadline for completing the income tax return.
Usage
Conditions
Selection of Account
You can use the CGAS deposited amount to purchase or construct a new property within the given time frame.
The deposit to CGAS must be made before the due date for filing the income tax return.
Type A (Savings Deposit) and Type B (Term Deposit)
Choose the account as per your need.
3. Investment in bonds under Section 54EC
If you want to know how to save tax on 1 crore then you must invest in bonds under section 54EC. It allows you to save tax by investing capital gains in some specific bonds for a lock-in period of 5 years. However, you must invest within six months of a property sale.
Lock-in Period
Conditions
Limit
A lock-in period of five years
Property seller must invest within six months from the date of sale
The maximum amount you can invest in bonds to claim the exemption is ₹50 lakh in a financial year.
4. Residential property investment under Section 54F
If you are investing capital gains in a residential property, within a specified timeline then it can also reduce your tax liability. Property sellers can also save capital gains tax on land sales by claiming exemptions that are available under Sections 54F, and 54EC.
Eligibility
Conditions
Amount of Exemption
Available to individuals and Hindu Undivided Families (HUFs).
the property seller must not own more than one residential house on the date of sale.
Also, the seller must buy another residential property within 1 year before or two years after the sale or construct a new house within three years from the date of sale.
The exemption amount will be calculated by dividing the net consideration received by the amount invested in the new property.
Conclusion of Strategies to Save on Property Sale
When a property owner sells a property in India, they get huge money but it also involves tax implications mainly the capital gains tax. However, some strategies and ways can help you save property sale tax. Understanding these ways and investing in bonds or residential property can help a property seller in minimizing tax liabilities. However, you must consult professionals to know about all the legal terms.
