Property Sale and Tax Sops | Magicbricks.com Property Pulse

Property Sale and Tax Sops | Magicbricks.com Property Pulse

Short-term capital gains or losses are treated and taxed in the same manner as any other incomes or losses. Tax on longterm capital gains can be avoided if the sale proceeds were invested in another residential property within one year before or are invested two years after the sale. Long-term capital gains can also be saved if only the capital gains (and not the total sale proceeds) are invested for a period of three years in National Highways Authority of India (NHAI) or Rural Electrification Corporation Limited (RECL) bonds.

Time limit

The determination of sale proceeds of a property is based on the valuation adopted by the State’s stamp duty and registration authorities and not the amount mentioned in the deed of conveyance. Section 54 allows an exemption on the sale of a residential property and reinvestment in another house. The reinvestment in a house should be through purchase that took place one year before or purchase two years after the date of transfer, or through construction of a new house that is completed before the expiry of three years from the date of transfer. Also, the assessee should be an individual or a Hindu Undivided Family (HUF), the gains should have arisen from the transfer of a house that was a long-term capital asset, and the income from such house should have been chargeable to tax under the head ‘income from House Property’.

The exemption is available to this extent:

If the amount invested is more than or equal to the capital gains, the entire capital gains is exempted
If the amount invested is less than the capital gains, the amount to the extent invested is exempted

Tax saving

For the purpose of claiming the exemption, the amount not invested towards purchase of the new house before the due date for furnishing the returns of income for the relevant assessment year should be deposited in any bank in a Capital Gains Account Scheme. The amount so deposited will be deemed to have been used for the purchase or construction of a new house. The amount may be withdrawn for the purpose of purchase or construction of a new house within a specified time.

In case a house was purchased out of capital gains made in a previous transaction, it should be held for 36 months. In case it is sold within 36 months of buying, the profits are added to income for that year, and taxed accordingly. In case one is in the highest income tax bracket, the tax rate will be 30.9 percent.

Deduction against principal repayment

In addition, the deduction under Section 80C will need to be considered. Under Section 80C of the Income Tax Act, the principal part of a home loan repayment can be claimed for tax deduction. But if the property is sold within five years of buying, the tax deductions are reversed. During the early years of a loan tenure, a major part of the repayment is allocated under interest. The principal component will be added to the income for the current year and taxed at 30.9 percent (for those in the highest tax bracket).