How to save capital on Capital Gain Tax ?

Let us first understand what exactly is Capital Gain Tax? Capital Gain Tax in simple terms is the profit made on the non-inventory asset. It is the difference between the amount invested and the amount gained at the time of selling the asset.

Real Estate is regarded as any other asset today.  Buying and then selling the property for financial gains have become a common practice now. People want to invest in property as it is the safest investment of all. The amount of gain on the selling of property is generally a huge amount and so is the tax on it. We in this article will share with you some expert advices to save capital on capital gain tax in the case of Real Estate.

Two kinds of capital gains can be made by selling a house property if the property is held for less than three years before selling it, then it is considered a short-term capital gain (STCG) and you have to pay tax according to your income-tax slabs. If the property is sold after three years or 36 months, then it is considered as long-term capital gain (LTCG) and you have to pay 20% of the profit as tax.
In short term capital gain, the gains from the asset is added to your income (considering it as your regular income) and taxed as per the income slab you fall under. While when it comes to long term capital gain, tax calculation involves the indexation.

Ways to save Capital on Capital Gain Tax:

1.Purchase another Property:

This is the most popular practice that the tax payers undergo. Investing in another property or investing in the construction of another house is what helps in saving capital on the capital gain tax. Also there is no restriction on buying the commercial property. Apart from that one thing to be kept in mind is that you should not transfer the new house within a period of three years otherwise capital gains exemption allowed earlier will be taxed as long-term capital gain.

2.Capital Gain saving scheme, 1988:

According to this scheme, you can deposit the non utilized money in a capital gains account with a bank which can be later withdrawn for purchasing or constructing a new house. Amount must be deposited before filing tax for the year.

3.Invest in Bonds U/S 54 EC:

Investing in Bonds U/S 54 EC can give you an exemption of tax. You can invest your long- term capital gains in bonds of the National Highways Authority of India or the Rural Electrification Corporation and you have to hold these bonds for minimum three years. Remember to do this investment within a period of six months from the date of sale of your old house property.

We hope that this article was useful to you; in case of any queries you can make your queries on our blog.

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