Take Advantage of these Tax Benefits while Selling your Home
Jan 18, 2017 Legal Guidance
To fix a price tag on the property you wish to sell is not the only significant task while planning to encash on your residential property. Although you might have fixed the most suitable price for the property, many a times people miss to judge the tax implications and find out at a later stage that the overall deal wasn’t that fascinating. Lack of knowledge regarding various taxes associated with the selling of a property results in losses for potential sellers.
So let us discuss some of the basics every property seller must be aware of in order to earn maximum profit from the deal:
Compute Wealth Tax: The seller is liable to pay wealth tax if the property to be sold falls under resale category and is also the second home of the seller. Wealth tax charged in such situations is the 1% of the total wealth you possess above 15 lakh rupees. Remember that total wealth comprises of everything you own such as gold, silver, cars etc.
Payment of duties: When you are computing the profit on the sale of your property, always remember to deduct the amount of brokerage paid to the realtor. Moreover, if you plan to purchase a home worth around Rs 50 lakh as your second home, you are liable to pay 8 percent duties against the brokerage, stamp duties and registration.
Short term and Long term Capital Gains: In India, investment in real estate is termed as an asset. As a result, any profit you earn by means of selling your property falls under the category of capital gains. However, always be clear with the whole picture of capital gains and its types.
When computing the capital gain against your property, you have the liberty to make several deductions from the profit earned such as stamp duty, registration, renovation amount, interest paid for financing home etc. The amount left after these deductions is taxable.
If you sell your property within three years of its purchase, then, profits earned from the deal will be termed as short term capital gains and will be added to your income. But if you sell the property after three years of its purchase, then, it becomes a long term capital gain entity which will be followed by several tax exemptions for you. After indexation, you are liable to pay 20 percent tax in case of long term capital gains.
How to earn maximum profits from capital gains: As per the Section 54(F) of Income Tax Act, you are exempted from paying tax on long term capital gains, provided that you invest the full amount to buy a new home for yourself within two years or construct your own house in three years.
Moreover, if you have already bought a new house before selling the first, you are still eligible for tax exemptions provided the purchase is made within a year of the sale. However, exemptions are only allowed if you do not possess ownership of two homes at the same time.
You can also invest in Government bonds to avail several tax benefits. For starters, Section 5(4) EC of the Income Tax Act has provisions for several tax benefits if money is invested in some specific bonds such as NHAI or REC to name a few.
So let us discuss some of the basics every property seller must be aware of in order to earn maximum profit from the deal:
Compute Wealth Tax: The seller is liable to pay wealth tax if the property to be sold falls under resale category and is also the second home of the seller. Wealth tax charged in such situations is the 1% of the total wealth you possess above 15 lakh rupees. Remember that total wealth comprises of everything you own such as gold, silver, cars etc.
Payment of duties: When you are computing the profit on the sale of your property, always remember to deduct the amount of brokerage paid to the realtor. Moreover, if you plan to purchase a home worth around Rs 50 lakh as your second home, you are liable to pay 8 percent duties against the brokerage, stamp duties and registration.
Short term and Long term Capital Gains: In India, investment in real estate is termed as an asset. As a result, any profit you earn by means of selling your property falls under the category of capital gains. However, always be clear with the whole picture of capital gains and its types.
When computing the capital gain against your property, you have the liberty to make several deductions from the profit earned such as stamp duty, registration, renovation amount, interest paid for financing home etc. The amount left after these deductions is taxable.
If you sell your property within three years of its purchase, then, profits earned from the deal will be termed as short term capital gains and will be added to your income. But if you sell the property after three years of its purchase, then, it becomes a long term capital gain entity which will be followed by several tax exemptions for you. After indexation, you are liable to pay 20 percent tax in case of long term capital gains.
How to earn maximum profits from capital gains: As per the Section 54(F) of Income Tax Act, you are exempted from paying tax on long term capital gains, provided that you invest the full amount to buy a new home for yourself within two years or construct your own house in three years.
Moreover, if you have already bought a new house before selling the first, you are still eligible for tax exemptions provided the purchase is made within a year of the sale. However, exemptions are only allowed if you do not possess ownership of two homes at the same time.
You can also invest in Government bonds to avail several tax benefits. For starters, Section 5(4) EC of the Income Tax Act has provisions for several tax benefits if money is invested in some specific bonds such as NHAI or REC to name a few.
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