New Delhi: If you are planning to sell a property in the near future then you should be aware of the rules on capital gains tax on property. If a property is sold within two years of buying it, any profit from the transaction is treated as a short-term capital gain. This amount is added to the annual income of the property owner for that financial year and is taxed as per his/her income tax slab.However, if you sell a property after holding it for more than two years, then the gain from that transaction is considered as long term capital gain (LTCG) and it is taxed at 20% after indexation (factoring in inflation). Another thing that needs to be mentioned here is that if you sell your house within five years of the end of the financial year in which it was purchased, the tax deduction claimed for the principal repayment, stamp duty and registration under Sec 80C are reversed and the amount becomes taxable in the year of sale. Only the deduction claimed on home loan interest payment under Section 24B is left untouched.So if you have bought a house by taking a home loan and have claimed the benefits under Section 80C, it is advisable to hold that property for at least five years. If you have not claimed the benefit of Section 80C then you should hold the property for at least two years.
If you sell after two years, then the gain is considered as LTCG and is taxed at 20% after indexation, which takes into account inflation during the holding period and accordingly adjusts the purchase price so that you have to pay LTCG on a lower amountWorth mentioning here is that one can also get exemption from LTCG tax payment on sale of a property. If you use the entire gain from the property sale to buy another house within two years or construct a house within three years then you can get exemption from LTCG tax payment. You will also get exemption from LTCG tax if you have bought a property one year before selling the first one.
If you are not interested to buy any other property then you have another option to get exemption from LTCG tax by investing that money in capital gains tax exemption bonds, which are also known as 54EC bonds. Investment in these bonds allows exemption from LTCG tax payment under Section 54EC of the Income Tax Act. The maximum limit for investing in 54EC bonds is Rs 50 lakh per financial year.
These bonds are issued by Rural Electrification Corporation (REC) and National Highway Authority of India (NHAI). Both these bonds fetch 5.75% interest per annum, which is payable annually and these bonds have a lock-in period of five years. It may be noted that the interest earned on these bonds is taxable but no TDS is paid deducted on interest.
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