Easy guide to capital gains tax on the sale of residential property

Introduction

Since its introduction into the Indian tax system in 1997, the notion of capital gains tax has undergone numerous changes.

Selling a home is a complex process. Everyone should be aware of the tax repercussions on the profit or loss if they intend to sell real estate in India. It requires an extensive study on the best price to offer, a reputable broker, determining the sincerity of the potential buyer, etc. The amount of money you must pay the government as taxes after the transaction could be more explicit.

In India, capital gains tax on the sale of real estate is assessed based on how long the seller owned the property. A short-term capital gain would be recognized if the property was held for less than two years, and a long-term capital gain would be realized if the seller owned the property for more than two years.

Facts about the Capital Gains

Regardless of whether it is a long-term or short-term capital gain, the advance tax must be paid throughout the year on capital gains deriving from the sale of the property.

At a short-term capital loss that results from the sale of a property, the loss may be offset against both short- and long-term capital gains that emerge in the same year. Long-term losses, however, cannot be offset by short-term losses; instead, they must be offset with long-term capital gains in the same fiscal year.

If the loss cannot be offset against a capital gain in that year, it may be carried over for the following eight years and offset in subsequent years.

How is the price of residential property in India taxed for capital gains?

Long-term capital gain is calculated as the Final Sale Price - (Indexed Cost of Acquisition, Improvement, and Transfer), where Indexed Cost of Acquisition is calculated as Cost of Acquisition x Transfer and acquisition costs' cost inflation indices.

How can I sell the home and avoid paying capital gains tax?

Capital gains tax can be avoided by reinvesting the resources into new houses, capital gains securities, or a savings scheme.

In compliance with Section 54 of the Income Tax Act of 1961, citizens and Hindu Undivided Families are exempt from paying taxes on long-term investment income on the sale of residential property if:

· The capital gains are used to finance the purchase or construction of a new home.

· The old house is sold, and the new one is bought one or two years later.

· The new home was constructed three years after the old one was sold.

· Only one extra residential property is bought or built.

· You sell the new home for only three years after possessing it.

· You sell the new home for only three years after possessing it.

The exemption is only proportionately applicable if the price of the new property is lower than the sale's revenues. In less than six months, the leftover funds may be reinvested under Section 54EC.

Tax on Long-Term Capital Gains from Property Sales in India

You should be aware of the tax repercussions on the gain from selling such assets if you intend to sell real estate in India. The amount of tax due on these assets is computed under the heading "Capital Gains" and is based on how long the seller possessed the property. There are two kinds of capital gains: long-term capital gains and short-term capital gains. For instance, if you sell a property you've owned for longer than two years, you'll need to pay long-term capital gain tax.

FAQ'S

1. Is it necessary for an NRI to pay taxes on profits from selling property in India?

Yes, NRIs who sell real estate in India must pay tax on their capital gains, whether the long-term or short-term growth will affect the amount of tax due.

2. What is the property sale capital gains tax in India?

You will be obliged to pay the appropriate capital gain tax depending on your yearly income. However, with indexation, the capital gain tax due over the long run will be 20.8%.

Conclusion

The global economy is at an all-time low while we contend with the dangers posed by this devastating pandemic. COVID-19 has had significant effects on the Indian economy as well, which is currently struggling to survive. There can be no dispute about the fact that there will be a lot to be uncovered in the future as we emerge from these trying times and assess the real-world effects of the adjustments made to the Long-Term Capital Gains Tax through the Budget of 2020. Capital gains from the sale of assets subject to advance tax should be paid annually. The questions that will be resolved in the future include whether they will increase the foreign investment portfolio and support continued economic growth or impede it.