How can you save capital gain tax on property sale?


A sale of a property usually comes with a substantial financial gain. However, any investment that is executed by procuring a property is legally considered a capital asset, and when it is sold, the earning from the sale is regarded as capital gains.

Depending on time and income, a capital gain tax will be imposed on this sale. The selling party is taxed on the amount earned after appropriate concession on the indexed price of the acquisition as well as adjusting for inflation as per the holding period of the said property. However, there are several ways one can avoid paying this Capital Gain Tax.

Investment into Bonds

One of the most effective ways of saving on capital gain taxis by rolling the gains into further investment in financial assets as are specified for tax exemption under Section 54EC of the Indian Income Tax Act, 1961. Within the first 6 months from the date of transfer of the sale funds, it is required invest the money earned into bonds, in order to avail the tax exemptions. Additionally, there is a minimum of lock-in period at least three years that the money should be invested in the said bonds. No interest will be gained for keeping the sum beyond the three year period. The seller is prohibited from trading, selling, gifting or assigning these bonds to any other person or party in this period.

Investment in Capital Gains account scheme

Capital Gains Account Scheme, or CGAS, is another nifty investment one can look into to get a capital gains tax exemption on their property sales. One has to maintain the invested CGAS scheme for a minimum period of three years, during which it is possible to make use of the sum only to purchase or build a residential house on a personal property. There are designated banks where a CGAS account can be opened and operated. Regional and cooperative banks cannot open one. One can deposit the money in a lump sum or convenient monthly installments before registering and filling for income tax returns.

Setting Off Capital losses

If one has incurred substantial capital losses in the past, it is possible to be exempted from paying the capital gain taxes on the sale of the property by setting off the current capital gains and profits against the earlier losses. The adjustment of all the short term capital losss and short term capital gains must correspond to the same year, as long as the losses are from a date before the gains. On the other hand one can use only long term capital losses to set off the long term capital gains, as long as both of these occurred within a stipulated period of 8 consequent years.

The sale of a property invites a tax of up to 20% capital gain taxation, depending on your income and holding period. With little financial planning, it is possible to get this tax waived.

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.


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