Capital Gain on Sale of Property
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Sale of Property
Selling a house? Get all information about income tax on the sale of property. Find out How to save tax on the sale of residential property with Tax Robo.
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Capital Gain on Sale of Property
Selling your property such as your residential home often yields profit. This profit is Taxable for Capital Gains.
How much Taxes you may end up paying depends upon the wisdom and patience of the individual.
Capital Gain under Income Tax Act
Depending on the duration for which you possess your property after the date of purchase, capital gains can be of two types :
Short Term Capital Gains:
If you decide to sell your house just after 2 years from the date of purchase, any profit made in the process will be called a Short Term Capital Gains (STCG).
This STCG is Taxed at a higher rate and with little to no benefits.
Long Term Capital Gains :
If you decide to remain patient and sell your house after 3 years from the date of purchase, the profit made in this situation is called Long Term Capital Gains (LTCG).
It comes with benefits such as a lower Tax rate (20% of the total profit made) for computation of LTCG, along with deductions for inflation.
However, if you decide to sell your property and buy another one, you can avail complete exemption from paying Capital Gains Tax if you reinvest the entire amount received after selling into buying a new property or construct a new house.
The new property needs to be bought either one year before or after 2 years from the day you sell your house.
If you're planning to construct a new house with the money received from selling the old one, make sure you do it within 3 years from the day of selling the old house.
There can be cases when you do not wish to reinvest the money you received from selling your old house into buying a new one.
For such individuals, there are Government bonds they can invest in.
Section 54EC allows individuals to invest the money they received after selling their house & non-residential property in bonds issued by the National Highway Authority of India or Rural Electrification Corporation.
Important Taxation Services
Income Tax Return for Salaried Persons
Features of investing in these bonds:
- You get a period of about 6 months to invest in these bonds
- Look-in period of 5 years
- Rate of interest received is low (5.75%)
- You can invest a sum of only Rs. 50 lacs in these bonds
- Interest earned on these bonds is Taxable
Note : You can keep the money you received post selling your property into a Capital Gains Account scheme offered by many Banks, if you wish to avoid paying Capital Gains Tax in that particular Financial Year.
If you wish to reinvest this money into the bonds mentioned above, you have 6 months to do so after which you'll no longer be able to invest in these bonds, and the profit you made selling your house will become Taxable.
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- Income More than 5 Lakhs
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Five Main Heads of Income
Income from Salary
- Salary is defined as the remuneration that a person receives periodically for rendering services based on an implied or express contract.
- The Salary for the purpose of calculation of income from Salary includes:
- Wages
- Pension
- Annuity
- Gratuity
- Advance Salary paid
- Fees, Commission, Perquisites, Profits in lieu of or in addition to Salary or Wages
- Annual accretion to the balance of Recognized Provident Fund
- Leave Encashment
- Transferred balance in Recognized Provident Fund
- Contribution by Central Govt. or any other Employer to Employees Pension A/c as referred in Sec. 80CCD.
Income from House Property
i. Basis of Charge [Section 22]:
- Income from house property shall be Taxable the house property should consist of any building or land.
ii. The Gross Annual Value of the house property shall be higher of following:
- Expected rent
- Rent actually received or receivable after excluding unrealized rent but before deducting loss due to vacancy
iii. Deductions
Municipal Taxes
Standard Deduction [Section 24(a)]
30% of net annual value of the house property is allowed as deduction
Interest on Borrowed Capital [Section 24(b)]
Let-out property - Actual interest incurred on capital borrowed
Self-occupied property - Interest incurred on capital borrowed allowed as deduction upto Rs. 2 lakhs. The deduction shall be allowed acquisition or construction of house property is completed within 5 years.
Maximum loss set off allowed in a Financial Products year is limited upto Rs. 2 lakhs, remaining loss can be carried forward to future years, 8 years in total
Income from Capital Gains
Any Income derived from a Capital asset movable or immovable is Taxable under the head Capital Gains under Income Tax Act, 1961.Short Term Capital Gains:
- Sold a Capital asset within 36 months and Shares or securities within 12 months of its purchase then the gain arising out of its sales after deducting there from the expenses of sale (Commission etc) and the cost of acquisition and improvement is treated as short term capital gain and is included in the income of the Taxpayer.
Taxability of short term capital gains:
- Section 111A of the Income Tax Act provides that those equity shares or equity oriented funds which have been sold in a stock exchange and securities transaction Tax is chargeable on such transaction of sale then the short term capital gain arising from such transaction will be chargeable to Tax @10% upto assessment year 2008-09 and 15% from assessment year 2009-10 onwards.
- A Capital Asset held for more than 36 months and 12 months in case of shares or securities is a long term capital asset and the gain arising there from is a long term capital gain. Long term capital gains are arrived at after deducting from the net sale consideration of the long term capital asset the indexed cost of acquisition and the indexed cost of improvement of the asset.
Taxation of Long term capital gains
- The long term capital gains are Taxed @ 20% after the benefit of indexation as discussed above. No deduction is allowed from the long term capital gains from Section 80C to 80U. But in case of individual and HUF where the Income is below the basic exempted limit the shortage in basic exemption limit is adjusted against the long term capital gains.
Income from Profits and Gains of Business or Profession
Under Section 28, the following income is chargeable to Tax under the head "Profits and Gains of Business or Profession":
- Profits and Gains of any Business or Profession.
- Any compensation or other payments due to or received by any person specified in Section 28(ii).
- Income derived by a trade, professional or similar association from specific services performed for its members.
- The value of any benefit or perquisite, whether convertible into money or not, arising from Business or the exercise of a Profession.
- Any interest, salary, bonus, commission or remuneration received by a partner from firm .
- Fair market value of inventory as on the date on which it is converted into, or treated as, a capital asset determined in the prescribed manner.
- Income from speculative transaction.
Income from Other Sources
"Income From Other Sources" is any income which is not specifically Taxed under any other head of income will be
- Taxed under this head.
- Section 56(2)(i), Dividends
- Winnings from lotteries, crossword puzzles, races including horse races, card game and other game of any sort, gambling or betting of any form whatsoever, are always Taxed under this head.
- Interest Income
- Gifts received by an individual
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Document Required for E-Filing Income Tax Return
Proof of Income
- Form 16 Copy – Part A & Part B
- Fixed Deposits
- Capital Gain Statement Share Broking
- FD Interest Certificate
- Invoice Copy
- Contract Copy
Proof of Deduction
- Life Insurance Premium
- Medical Insurance Premium
- School Fees Receipts
- House Property Tax
- Interest Certificate Housing Loan
- Tax Savings Documents
- Additional Deduction Documents
This may come as a surprise but you don't need any documents or proofs to attach with your Income Tax Returns.
All you need is your Aadhar ID linked with your PAN.
You need documents ONLY IF YOU SEEK TO CLAIM DEDUCTIONS while filing Income Tax.
You DO NOT NEED TO ATTACH ANY DOCUMENTS in your IT return application. Fill your Income Tax return honestly and claim deductions that genuinely apply to your application.
You may need documents only if an Income Tax assessing officer sends you a notice asking you to present those documents before them. Till then, procure all the documents that may be needed and keep them safe.
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