Selling
a house is one of the important tax events that you should consider before
committing to the sale. All the profits that you make from the sale are
taxable.
Following
scenarios will help you understand the quantum of the tax implications you have
based on when you sell.
Case
|
Scenario 1: Sales within less than 3
years of purchase
|
Scenario 2: Sales after more than 3
years but less than 5 years of purchase
|
Scenario 3: Sale after more than 5 years
of purchase
|
Example
|
You
bought a house for 50 lakhs and sold the house by 2nd year for around 60
lakhs. You made the profit of 10 lakhs
|
You
bought a house for 50 lakhs and sold the house by 4th year for around 70
lakhs. You made the profit of 20 lakhs
|
You
bought a house for 50 lakhs and sold the house by 6th year for around 80
lakhs. You made the profit of 30 lakhs
|
Tax Treatment
|
This
whole sum of 10 is treated as a short-term capital gain in your hands and
gets added to your income for the year of sale (for joint owners it's added
to their respective incomes in the ratio of their ownerships). And hence, its
taxed as per your tax slabs
|
This
whole sum of 20 lakhs is treated as long term capital gain and taxed at the
rate of 20% after indexation. However, note that there is a catch if you are
selling in this window of 3-5 years from purchase, the tax benefits which
were claimed earlier will have to be reversed.
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 of the interest payment under Section 24B is left
untouched
|
This
whole sum of 30 lakhs is treated as long term capital gain and taxed at the
rate of 20% after indexation. In this case you have no reversal of the tax
benefits that you have claimed till date
|
Ways to avoid Tax
|
There is
no way you can avoid paying tax on that. You can only set-off the gains
against the short-term losses from the same year on the sale of other assets.
|
If you
use the entire gain from the transaction to buy another house within two
years or construct another house within three years. In case the entire
capital gains are not invested, the balance is charged to long-term capital
gains tax. Note that the entire tax exemption will still be reversed in this
scenario.
|
It's all
same as scenario two except that there is no reversal of tax exemptions
claimed by you.
|
In
each case, you can also minimize the profits that is liable for tax by
making sure you have calculated your cost of acquisition of the house
correctly.
In
case you don't want to invest the capital gain proceeds in another house, but
still want to save tax then you have the following options
- Claim exemption under Section 54 (EC), and in this case you should be investing for 3 years in bonds of NHAI and RECL within 6 months of sale of house. The max limit to save via this way is 50 lakhs.
- You may also set-off capital gains against any long term capital losses from the sale of other assets. And these could be from the same financial year, or the ones you have been accumulating from last 8 years.
So,
you would have realized now, you should be keeping your house for at-least 5
years before deciding to sell it, if you are looking at it from tax efficiency
perspective.
No comments:
Post a Comment