How to save taxes on the sale of commercial or residential property
BENGALURU: Many people who invest in properties with the intention of selling them later at a profit. But, the profit earned from the sale of property, called capital gains tax, is not exempt from taxes. “If you sell your property within 36 months of acquiring it, it’s considered to be a short-term capital gain. After 36 months, it’s long-term capital gain. Short-term capital gains have no exemption, while long-term gains are exempt from taxation by 20 per cent if they fulfil certain conditions,” said Suresh K P, a personal finance expert.
A new residential property can be purchased or constructed to claim the exemption, says Chetan Bhatia from Beyond Numbers.
If a person is unable to invest the money in another property before or after the tax filing, he can go and deposit the money in a public-sector bank in a ‘capital gains account scheme’.
Bhatia says only one house property can be bought or constructed. According to the new provision that began in 2014-15, it is mandatory that the new residential property must be situated in India. The exemption shall not be available on properties constructed outside India.
Once the money is in a capital gains account scheme, the person has three years to get the property construction started, says Hemant Gowda, chairman, ATK Infrastructure. If not, the capital gains amount will be taxed as a long-term capital gain (at 20 per cent plus a three per cent cess).
Investors should keep a few things in mind while selling property. “If the cost of the new residential property is lower than the total sale amount, exemption is allowed proportionately. For the remaining amount, one can invest the money under Sec54EC within six months. The property must be bought in the name of the seller. If the builder of the new construction fails to hand over the property to the taxpayer within three years of purchase, exemption is still allowed,” Hemant added.