A portion of what you earn goes to the government as income tax when your gross annual income is below the tax rate.
Similarly, if you make a profit by selling an asset like property after holding it for more than two years, that income is also taxable. In this case, the profit is known as long-term capital gain (LTCG), which is taxable at 20.8%. However, certain exemptions will allow you to save on LTCG.
20.8% LTCG tax on the sale of indexed real estate, which allows you to save some money. Indexing is a method for adjusting the historical cost of an asset to the rate of inflation. When gains from the sale of assets are adjusted for inflation, the tax liability is reduced.
If you plan to sell your old home, there are certain things you must keep in mind to avoid paying taxes on income arising from the sale of your home.
- Under Section 54 of the Income Tax Act, one may be exempt from tax on long-term capital gains if the proceeds from the sale of a residential property are invested in the purchase of another home. However, there are certain conditions you must meet to be exempt from LTCG.
- The residential property you sell must be a long-term capital asset. You must hold the residential property for more than 24 months before selling it.
- If you want your capital gains tax-free, you should purchase another residential property within two years of the transfer of the old home. You can also invest the profits in the construction of a new residential home within three years of selling the old property to avoid paying taxes.
- Section 54 also provides for an exemption from LTCG if more than one home is being purchased or built after the sale of the old home. However, long term capital gains must not exceed Rs 2 crore to avail this benefit. Furthermore, a taxpayer can only get an exemption once in a lifetime.
- Previously, this benefit was only available for the purchase or construction of a residential property but has been extended to more than one home as of the 2021-22 Assessment Year.
If you plan to sell your old home but don’t want to invest in other real estate, you can invest your money in specific bonds to save on taxes.
You can invest up to Rs 50 lakh in such bond within six months from the date of sale of the old house.
You can invest in bonds issued by National Highways Authority of India (NHAI), Rural Electrification Corporation (REC), Railway Finance Corporation of India (IRFC) and Power Finance Corporation (PFC). practice to save taxes on the proceeds of the sale of the property.