Are you questioning the impact on your taxes after the government's current modification in the capital gains tax routine genuine estate? Well, house owners will now have the choice of two tax rates on long-lasting capital gains: a 12.5% rate without indexation or a 20% rate with indexation advantage.

Selling a residential or commercial property can be a significant financial deal, however it is essential to comprehend that it may likewise attract capital gains tax. However, there are numerous strategies you can utilize to minimize the tax concern and conserve more of your hard-earned cash. In this post, comprehend what is capital gains tax on residential or commercial property and explore various techniques to minimize capital gains tax when selling a residential or commercial property.

What is Capital Gains Tax on Residential Or Commercial Property?

Capital gains tax on residential or commercial property is a tax troubled the revenue earned from offering an asset. When you sell a residential or commercial property for more than its purchase cost, the difference between the market price and the expense of acquisition is considered as capital gain. This gain goes through tax according to the prevailing tax laws in India.

Different Types of Capital Gains

There are two types of capital gains: short-term (STCG) and long-term (LTCG). The duration of holding identifies whether the gain is short-term or long-term.

Short-term Capital Gains (STCG): Residential or commercial property sold within 2 years of acquisition is taxed at 20%. Long-term.
Capital Gains (LTCG): Residential or commercial property sold after holding it for more than two years is treated as a long-term capital gain. Currently, LTCG on residential or commercial property sales is taxed at a flat rate of 20%, with advantages offered or at 12.5% without indexation advantages.


Strategies to Save Capital Gains Tax on Residential Or Commercial Property Sales

1. Joint Ownership

If you co-own a residential or commercial property with somebody else, you can divide the capital gains from the sale amongst the co-owners based on their ownership share. This permits each co-owner to utilize their basic exemption limit and potentially lower the general tax liability.

Mr. and Mrs. Patel collectively own a residential or commercial property that they bought 10 years ago for 40 lakhs. They choose to offer it for 1 crore. Since they are equal co-owners, they divide the capital gains similarly in between them - 30 lakhs each.

They can declare exemptions approximately 1.25 lakhs each, totalling to 2.5 lakhs on their respective gains, for tax cost savings and reducing their general tax liability.

2. Reducing Selling Expenses

Certain selling expenses, like remodelling expenses, can be subtracted from the sale price when determining capital gains on residential or commercial property sales, reducing the taxable capital gains.

Mr. Gupta sold his residential or commercial property for 60 lakhs. However, he incurred expenses such as brokerage charges, legal charges, and marketing expenses totaling up to 2 lakhs, which can be subtracted from the sale price. As an outcome, the price is 58 lakhs.

3. Holding Period

Holding a residential or commercial property for more than 2 years can certify you for long-lasting capital gains tax rates, which are typically lower than short-term rates.

4. Availing Indexation Benefit

When you sell a house after holding it for at least 2 years, you can benefit from the indexation benefit. Indexation changes the purchase expense of the residential or commercial property to account for inflation, which effectively lowers the quantity of capital gains and consequently the tax on it.

5. Buying a New Residential Or Commercial Property (Exemption under Sec 54)

One popular technique of saving tax on the sale of a home is by reinvesting the capital gains in another domestic property. Under Section 54 of the Income Tax Act, you can declare an exemption if you satisfy specific conditions-

- Firstly, you require to acquire a brand-new residential or commercial property either one year before or 2 years after offering your existing residential or commercial property. Alternatively, you can build a brand-new residential or commercial property within 3 years of selling your previous one.
- The entire sale proceeds must be reinvested to obtain full exemption. If only the capital gain is reinvested, then the exemption is given proportionally.


6. Buying a New Residential Residential Or Commercial Property (Exemption under Sec 54F)

Apart from selling a house, if you offer any other possession and use the proceeds to obtain a new residential home, you can declare an exemption under Section 54F.

- Similar to the conditions discussed above, the new residential property needs to be purchased either one year before or 2 years after selling the property. Moreover, it should be built within 3 years of offering the property.
- It is very important to keep in mind that while declaring this exemption, the seller ought to not have more than one residential property, excluding the freshly gotten one.


7. Tax Loss Harvesting

Losses from sales of shared funds or shares can be utilized to offset capital gains on residential or commercial property sales to minimise your tax liability.

Ms. Sharma sold some shares of a company at a loss of 3 lakhs. She had also just recently offered a residential or commercial property, incurring a capital gain of 10 lakhs. By balancing out the loss from the shares against the gain from the residential or commercial property, her taxable capital gain would be lowered to 7 lakhs.

8. Purchasing Bonds (Exemption under Sec 54EC)

Under Section 54EC, you can save on capital gains tax on residential or commercial property by buying specified bonds released by National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC). The financial investment requires to be made within 6 months from the date of sale.

Example:

Mr. Kumar, after incurring 30 lakhs in long-lasting capital gains from offering his flat, prepares to invest this amount in NHAI bonds within six months and declares an exemption of 30 lakhs.

9. Reinvesting Gains into Shares of Manufacturing Companies

Under Section 54GB of the Income Tax Act, people have the alternative to reinvest their long-lasting capital gains from the sale of a home into shares of a qualified business engaged in production activities.

10. Investing in Capital Gain Account Scheme (CGAS)

Consider investing in the Capital Gain Account Scheme (CGAS) to declare exemption. However, it is essential to note that the deposited amount in CGAS ought to be made use of within three years; otherwise, you will be accountable to pay tax on that quantity.