Tax-Savings: Learn the mathematics of tax and savings on the profits made from selling property, after Corona, the demand for big houses increased

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The demand for big houses has increased after the Corona period. People are buying a bigger house for themselves by selling old house or other property. But, do you know that the profit earned from selling the house or property has to be taxed?

Actually, tax is calculated in two ways on the profit made by selling the house. If you have sold the house after holding it for three years, then the profit from it will be treated as Long Term Capital Gains (LTCG). Selling the house before this period will be treated as Short Term Capital Gains (STCG).

STCG is considered as additional income hence tax has to be paid on it as per slab. At the same time, after taking the benefit of indexation relative to inflation on LTCG, the balance amount will have to be taxed at the rate of 20 percent. Apart from this, a cess of three per cent will also be levied. Profit is calculated by subtracting the amount spent on buying the property and its repair expenses.

Ways to Save… Buy or Build a Second Home

If there is a long term capital gain from the sale of the house, then this amount can be used to buy another house. By doing this you can avoid tax liability. This exemption will be available on purchase of a ready-to-move (ready) house within two years of the sale of the house.

• If you have bought another house even a year before the sale of the house, then you can also take advantage of tax exemption.
• If the amount does not exceed Rs 2 crore, then the profit from selling one house can be used to buy two houses. This facility is available only once.

You can also deposit in bank

Even if you get two-three years to invest the profit from the sale of the house, but it will have to be reported in the Income Tax Return (ITR) filed after the sale. If you are not able to invest by then, then you can put the profit amount in the capital gains account scheme of banks. It will not be taxed till the stipulated time.

You can invest money in government bonds

You can also save tax by investing in government bonds within 6 months from the date of sale of the house. One can save tax on capital gains amount by investing in capital gains bonds of NHAI, Rural Electrification Corporation, Railway Finance Corporation. The investment period in this is 5 years. It earns 5.25 per cent interest every year, which is taxable. -Girish Narang, Tax Consultant