How to save tax on the sale of residential property? Don’t sell too soon
Buying and selling a real estate property not only involves a huge amount of money, but the prevailing market price and personal choice matters as well. Thus, it takes a long time to select and buy a house and also to find a suitable buyer to sell one.
Not only to find a suitable buyer, you have to wait even to save capital gains taxes, if any, when selling a property.
This is because if you sell a property within two years of the date of purchase, the capital gain, if any, is treated as short-term capital gain (STCG) and added to your taxable income. On the other hand, if you sell a home two years after the date of purchase, the gain, if any, is treated as a long-term capital gain (LTCG) and is taxed at a flat rate of 20%. after benefiting from indexation.
“When the price of a good appreciates, there is capital gain. Profits from the sale of real estate held as a short-term investment are taxed at regular income tax slab rates. By law, the gain on a fixed asset held for less than 24 months is considered a short-term capital gain (STCG),” said Archit Gupta, Founder and CEO of Clear.
“However, if you hold the property for more than 24 months, the profit is treated as a long-term capital gain (LTCG) and taxed at 20% after indexation. Indexation consists of adjusting the purchase price to inflation and thus reducing the capital gains figure for the seller. For LTCG, there are also other advantages. The seller can apply for LTCG exemptions, but such a benefit is not available if there is a STCG,” he added.
However, as in the case of LTCG, in the case of STCG, you can also claim capital expenditures made for additions and/or alterations to the house in addition to the cost of the house. In addition, expenses incurred solely in connection with the transfer of the property may be claimed as a deduction when calculating the capital gain.
“Even the STCG on the sale of a property can be adjusted against short-term losses resulting from the redemption of shares, mutual fund (MF) units, etc.,” said CA Karan Batra, Founder and CEO of CharteredClub.com.