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How to Save Capital Gain Tax on Sale of Residential Property?  



I am planning to sell property but I am concern about how do i avoid capital gains tax on property in India? At least I can say that, I am not prepared to pay the tax, is there a way how to minimize long term capital gain tax on sale of property in India?

2 Answers

Despite the fact that there are no tax exclusions on short-term capital gain, long-term capital gain tax are liable to some of the tax exemptions. This implies you can legitimately save money on long term capital gain tax by following specific set of principles or rules mentioned under the Income Tax Act in India. There are 4 key exemption for long term capital gain tax, they are as follows:

1. Section 54: You can save long term capital gain tax which has arisen from sale of property by reinvestment onto another property.

2. Section 54EC: You can minimize your long term capital gain tax on sale of residential property by reinvestment in specific bonds.

3. Section 54F: Long term capital gain tax on sale of any immovable asset other than a residential property can be reinvestment in purchasing a residential property.

4. Capital Gains Account Scheme (CAGS): If you can't contribute the long term capital gain tax inside the predetermined time, you can deposit your total amount in a CAGS account. This amount ought to be utilized in an offered timeline for construction or buying another residential property.

This is just a brief overview on how you can avoid capital gains tax on property in India. I would advise you to get in touch with your family lawyer or any of the local well-know lawyer to get more details on it.



Firstly Capital gains are taxable, There are mainly 2 broad categories of Capital Gains Tax: Short-term and Long-term. Short-term capital gains originates from the sale of property held by the investor for up to 3 years (36 months), while long-term capital gains is the benefit from sale of property when held for more than 3 years.

 If you want to save capital gain tax on sale of residential property then here are few of the exemptions under Income tax act in India:

1. Exemption under Section 54:

Under Section 54, you are absolved from making good on LTCG government expense on the off chance that you purchase another house either 1 year before the offer of the old property or inside 2 years of offering it. On the off chance that you are intending to build another house, this ought to be done inside 3 years of offer of the old property. You can get an exemption on the whole capital gains, or up to the expense of the new private property, whichever is lower. 

2. Special cases under Section 54F:

Indistinguishable special cases from those under Section 54 are appropriate to Section 54F – you can just purchase 1 house, you need to purchase the house in India, and you can't offer the house for the following 3 years.

 Offer a House or Stocks, Buy Some Bonds:

In the event that you are offering a long-term resource however don't plan to put resources into another house, there is another approach to spare LTCG tax. You have to put the capital gains in advised bonds. These securities are normally issued by government bodies, for example, Rural Electrification Corporation (REC) and the National Highways Authority of India (NHAI), and the loan cost is 6%. The intrigue gained isn't absolved from tax.

3. Exemption under Section 54EC:

Under Section 54EC, you don't need to settle LTCG regulatory obligation at a bargain of any long-term capital, if the sum got as capital gains is contributed to purchase particular informed government bonds and securities. The bonds ought to be purchased inside a half year of the offer of the advantage. The most extreme sum you can put resources into along these lines is Rs. 50 lakh. Nonetheless, this speculation is confined to a solitary monetary year. On the off chance that the half year time frame is spread into 2 budgetary years, at that point you can contribute Rs. 50 lakh twice – i.e. you can guarantee tax findings of up to Rs. 1 crore. For instance, in the event that you sold your advantage in January 2016 and got capital gains of Rs. 75 lakh, you can purchase told bonds worth Rs. 50 lakh in February 2016 and contribute the rest of the Rs. 25 lakh in bonds in April 2016 to profit full exemption.

4. Store in Capital Gain Deposit Account Scheme (CAGS):

Capital Gain Deposit Account (CGDA) Scheme, 1988, is corresponding to Section 54 and Section 54F. On the off chance that you can't use the whole capital gains made in an exchange till the date of documenting Income Tax Return, at that point you can store the unutilised sum under the CGDA Scheme in any open division bank. Once the cash is stored in this record, you have to utilize it inside 2 years (if there should be an occurrence of procurement of another house) or 3 years (on the off chance that you are building another house).

You need to open the record before the due date to document I-T return, and the cash must be utilized just to purchase a private property. On the off chance that the cash isn't used in purchasing a house inside as far as possible, the capital gains will be liable to tax.

Offer of a long-term capital regularly gets you high benefits in view of the expanding expansion and cost each year. In the event that you contribute the benefits well, you can spare yourself 20% of the sum which generally would go to the administration as tax.

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