Whether it’s a salary income, rental income, interest income, capital gains, or any other type of income, it is compulsory for everyone to pay taxes on all the sources of income. Therefore, it is extremely important to be aware of how much tax one needs to pay and how to save tax.
In this blog, you will know about the best ways to save capital gain tax on the sale of a property.
1. Property Sold Within 24 Months i.e Short Term Capital Gain
If you are selling a property within 24 months of its purchase, you are not eligible to claim any exemption on capital gain tax.
The amount of capital gain tax that you are required to pay on selling any property within 24 months of its purchase is based on your income tax slab rate.
2. Property Sold After 24 Months = Long Term Capital Gain Tax
If you are selling any property after 24 months of its purchase, you can use the following ways to save the capital gain tax;
a. By Investing In Capital Gain Bonds – 54EC
In order to claim an exemption for capital gain tax under 54EC, you are required to invest in bonds of specified entities like;
– National Highway Authority of India
– Rural electrification Corporation
– Indian Railway Finance Corporation
– Power Finance Corporation of India
However, you are required to keep these important factors in mind before making the required investment;
– The investment must be made within 6 months of the date of sale
– These Bonds will have a lock-in period of 5 years
– The maximum Exemption available by investing in such bonds is 50 lacs
b. By investing in residential property – 54F
In order to get an exemption for capital gain tax under section 54F, you need to make sure that;
– The new residential house property must be purchased or constructed to claim the exemption.
– The new residential property must be purchased either 1 year before the sale or 2 years after the sale of the property/asset.
– The new residential house property must be constructed within 3 years of the sale of the property/asset
– Only one house property can be purchased or constructed.
– Amount of Exemption –
Amount of exemption = Cost of the new house x Capital Gains/Sale Receipts
– The house property that you buy or construct using the sale proceeds of the capital gain should not be transferred or sold within 3 years of purchase or completion of construction above all, if you are not able to invest the specified amount before the date of tax filing then deposit the specified amount in a public sector bank or any other bank as per the Capital Gains Account Scheme, 1988.
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