How To Save Tax On Residential Properties?

Ownership of the property providers the holder a lot of benefits. The immovable asset not only acts as physical security and safety but it also acts as an investment avenue. As the property sale usually results in the profit of the owner, IT or income tax laws in India treat the benefits as income and taxes are levied accordingly. If you do not plan this with care, the sale may, in for prove to be a costly affair, in terms of tax liability, significantly eating into the profits. Therefore it is pertinent that you find legally accounted means to reduce your tax on the property for sale.

Before checking the points that will help us to save face, let us look at some of the factors which will help determine the tax liability of the property seller.

The Capital Gains Holding Period
Under the Income-tax laws, the holding period, or the time for which you stay as the owner of the property before you sell it, this plays a very important role in deciding the liability of tax. If the law perceives the transactions to fall under the category of STCG or short-term capital gains, the tax liability will be high. But if the transaction falls under the LTCG or long-term capital gain category, you will be charged 20.8% of profit in tax. The LTCG of 20.8% is applicable irrespective of the tax slab.

Another important thing that you should note is that the taxpayer is allowed several rebates under the provision of the Income-tax Act, in case the transaction is treated as a long-term capital gain.

In short-term capital gains, the scope to reduce tax liability is almost non-existent. The IT payer can set off the gain agents any loss for short-term from the sale of assets like gold and stocks etc.

Investing In New Property
The tax liability for you will be considered low and akin to zero when you reinvest the sales proceeds of the old property in new one with a specific period. This is subjected to certain conditions and terms.

Property Ownership
For Sellers the tax liability is always high and who own multiple properties. The same is not true in the case for someone who has only one property. We shall examine the specific provisions which establish.

How To Save Tax?
Following are some of the options that are available for the sellers to save taxes on the property sale.
Section 54 Benefits on Purchase of New Property Of you list your property for sale within two years of your purchase, the gains that you will be earning through the sale would be treated as short-term capital gains and will be taxed based on the tax slab.

Only when you sell your property within two years of your purchase the application of deductions offered under section 53 will start to arise. Therefore you will earn a profit under long-term capital gains. In such cases when the profits will be taxed at 20.8% along with the indexation benefits, section 54 will help you to get relaxation if you follow the conditions. These conditions include:

-Number of Houses That You Can Invest:
One can reinvest the capital gains from the property sale in construction up or buying two houses. It is important to recall get that the exemption was limited to only on the property before the 2019 budget extended it for two properties.

-The Holding Period for Claiming the Capital Gains Tax Exemptions:
This law also imposes some restrictions concerning the purchase location, time and holding period of the property.

These were some of the ways to save tax on the sale of residential properties. The owners should keep these points in mind while selling their property to enjoy IT benefits.