If you are about to sell your house, you probably know it is not the easiest thing to do. You may be having second thoughts, third thoughts and fourth ones too. Well, whatever may be your reason for selling the house, you better know about the taxes that you have to pay on the earned income. We are talking about the CGT; Capital Gains Tax. This tax is imposed on the income earned and varies in accordance with the profit and the duration of the ownership.
What is CGT?
As per Income-tax Act, 1961, Capital Gains Tax is imposed on the profit you gain after selling the property; 20% of the profit after the indexation. If the property is owned for less than 3 years, the tax varies; for profits less than 5 lakh, it is 10% which increases to 20% for the profit varying between 5 lakh to 10 lakh. If the profit on the property is beyond 10 lakh, the tax levied is a whopping 30% of the profit.
The indexation being the rise in the property rates since the year of purchase.
So, is this CGT unavoidable? Is there any way to keep the tax to a minimum?
No. There are certain getaways for you to partially or fully avoid the capital gains tax. Let us see what they are.
1. Own the property for more than 3 years
As we clearly mentioned that the CGT depends on the duration the property has been owned by the person. For selling the property after 3 years of ownership, the tax is constant and that too after indexation which is applicable for long-terms capital gains only. Let us suppose that someone bought a property for 10 lakhs five years ago and he intends to sell it now. He sells the property for 25 lakhs which appreciated to 12 lakhs now.
So, the tax is imposed on 25-12 lakh i.e 13 lakhs. If the property was sold sooner than 3 years, the tax would have been imposed on 25-10 lakh i.e. 15 lakh. Not to mention, the varying tax percentages. So, keeping the property in-house for longer, helps you save on the taxes.
2. Sell one and buy another
Another way to save on the taxes is investing the money from the sale of one property into another. The seller is completely exempted from paying this tax for doing so. This is considered one of the best method to get richer by owning a real estate. As the prices of the properties rise, it is sold and the money is invested into another keeping the complete capital gain.
3. Invest in the Govt. schemes
For all those people investing in the real estate as a one-time affair, they do not want to lock their money into it. As such, they can place smart by contributing in various National projects like a bond of three years for National Highways Authority of India. Another good option is Rural Electrification Corporation Limited. One need to make the investment within the 6 months of the sale of the property and the investment can be less than 50 lakh.
4. Get the startups going
There is one more plan on the way which guarantees no tax for at least three years. The property seller can invest the capital gain in IT/ITes start-up to give them the support for the survival. These startups are acknowledged by the Ministerial Board of Certification. Thus, you will be saving on the taxes and helping the nation to develop.
Whatever may be your preferred way of saving on the taxes, just remember that the taxes help improve the infrastructure for us. Being driven by the personal profits, we can maximise the gain but do not make compromises on the taxes with any unlawful means. Own a roof can help you not only with the online property search, they can give you a guidance on the taxes implications. Just keep in touch with the support executives.