All of us think about the best means to save taxes. When it comes to
real estate, paying the taxes involve a considerable sum of money, which
if saved, adds a lot of value to our accounts.
For understanding the best possible measures to save taxes, it is important to first understand capital gains. In simple terms, capital gains are the profits earned on selling a capital asset. Explaining the concept on Magicbricks’ user forum, Open House, an expert comments, “Under the provisions contained in the Income-tax Act 1961, capital gains tax is payable whenever profit is derived on selling a capital asset. If the item sold is not considered a capital asset, the gains raised out of the sale are not subject to income-tax. For instance, agricultural land in India, under certain facts and circumstances, is not treated as a capital asset as per the definition contained in section 2(14) of the Income-tax Act 1961.”
Types of cpital gain taxes
There are two types of capital gains in real estate – Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG). The date of registration of the flat is considered as the date to calculate the capital gains. When a property is withheld by a person for more than three Years (after the date of registration), it results in LTCG on sale of that property. However, if a property is withheld for less than two years, from the same date, it results in STCG which are added to the income of a person and tax is calculated according to the slab rates of Income Tax.
How to save these taxes?
“In case of Long Term Capital Gains, you are liable to pay 20 per cent of Capital Gains as tax. For example, if you bought a property for Rs 10 lakh and sold it for Rs 20 lakh after 3 years, you are subject to a gain of Rs 10 lakh, and thus liable to pay Rs 2 lakh as tax. In order to save this amount, you must re-invest your capital gains in either a residential property or Capital Gains Bonds,” says Subhash Lakhotia, Tax & Investment Consultant, R N Lakhotia & Associates
“Reinvesting the gains in a commercial property, agricultural land, plot or payment of loans does not help save taxes. However, tax could be saved if one invests in a plot and constructs a residential building within three years of selling the property,” adds Lakhotia.
Calculating the taxable gains
Capital gains are the final sum of profits earned on selling the asset. Expenditures such as stamp duty and registration charges, interests on home loans for which no tax deduction has been sought and renovation costs are deducted from the capital gains amount. Thereafter, whatever is the net amount of gain is considered the final taxable gain.
So now when you know that there are no means to save STCG taxes, it is always better to keep a long-term horizon of investment.
Courtesy: Magicbricks.com
For understanding the best possible measures to save taxes, it is important to first understand capital gains. In simple terms, capital gains are the profits earned on selling a capital asset. Explaining the concept on Magicbricks’ user forum, Open House, an expert comments, “Under the provisions contained in the Income-tax Act 1961, capital gains tax is payable whenever profit is derived on selling a capital asset. If the item sold is not considered a capital asset, the gains raised out of the sale are not subject to income-tax. For instance, agricultural land in India, under certain facts and circumstances, is not treated as a capital asset as per the definition contained in section 2(14) of the Income-tax Act 1961.”
Types of cpital gain taxes
There are two types of capital gains in real estate – Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG). The date of registration of the flat is considered as the date to calculate the capital gains. When a property is withheld by a person for more than three Years (after the date of registration), it results in LTCG on sale of that property. However, if a property is withheld for less than two years, from the same date, it results in STCG which are added to the income of a person and tax is calculated according to the slab rates of Income Tax.
How to save these taxes?
“In case of Long Term Capital Gains, you are liable to pay 20 per cent of Capital Gains as tax. For example, if you bought a property for Rs 10 lakh and sold it for Rs 20 lakh after 3 years, you are subject to a gain of Rs 10 lakh, and thus liable to pay Rs 2 lakh as tax. In order to save this amount, you must re-invest your capital gains in either a residential property or Capital Gains Bonds,” says Subhash Lakhotia, Tax & Investment Consultant, R N Lakhotia & Associates
“Reinvesting the gains in a commercial property, agricultural land, plot or payment of loans does not help save taxes. However, tax could be saved if one invests in a plot and constructs a residential building within three years of selling the property,” adds Lakhotia.
Calculating the taxable gains
Capital gains are the final sum of profits earned on selling the asset. Expenditures such as stamp duty and registration charges, interests on home loans for which no tax deduction has been sought and renovation costs are deducted from the capital gains amount. Thereafter, whatever is the net amount of gain is considered the final taxable gain.
So now when you know that there are no means to save STCG taxes, it is always better to keep a long-term horizon of investment.
Courtesy: Magicbricks.com
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