In today's world of skyrocketing real estate prices, the owners stand to gain much from their real estate sales. But it is not always about gain and profits only. Real estate transactions have specific tax implications that can significantly impact your finances if ignored.
In this blog, you will understand the structure of taxes on selling real estate. It can help you make suitable financial decisions and reduce your tax liability.
A capital gain tax is levied on the proceeds from the sale of real estate after considering the inflation and indexed acquisition cost. Capital gain tax is of two types:
If the property undergoes a sale in less than two years from the purchase date, you are liable for a short-term capital gain. Typically, it is the difference between the selling price and the property's purchase price. The difference amount adds to the individual's income.
The government considers the profit under long-term capital gain if the real estate is sold after 24 months. It levies a taxation of up to 20% depending on various factors.
Long-term capital gains have an exemption from taxation under Section 54 in the Income Tax Act 1961. It applies to individuals and Hindu Undivided Families (HUF) on selling a house property if:
Selling real estate is a crucial financial decision. Hence, staying informed about tax laws is essential to get the best returns from your investments.
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The capital gain tax for short-term capital gain is applicable as per the income tax slab of the owner, and for long-term capital gain, the tax payable will be 20%.
Any real estate sale attracts capital gain taxes. If the property undergoes a sale within 24 months from the purchase date, a short-term capital gain is applicable. A long-term capital gain is relevant if it is sold after 24 months.
Under section 54 in the Income Tax Act, an individual or HUF selling a residential property can claim tax deductions if the capital gains are reinvested in purchasing or constructing another house.
If the owner has possession for less than 24 months, a short-term capital gain is applicable per the individual's tax slab. And if the ownership surpasses 24 months, a long-term capital gain tax is applicable.
Short-term capital gain is applicable if the property is sold in less than 24 months at an individual's tax slab, while a long-term capital gain is applicable if the property is sold after 24 months and is taxed at 20%.