House sale tax is the tax that individuals must pay to the government upon the capital gain they receive after selling their property. Capital gain is the profit that you earn after selling your property. The government of India levy taxes on this capital gain or the raw amount you get as a profit after deducting the cost of the asset from its sales value.
The house sales tax varies according to the types of capital gains. As it is levied on capital gains, the house sale tax is also widely known as capital gain tax. Here is a detailed discussion on the vital aspects of house sale tax that you need to know before selling your property.
What Has The Budget 2024 Offers In House Sale Tax?
The amendment of Finance Bill 2024 brings back the indexation benefits on the sales of immovable properties. As per this new amendment, taxpayers with immovable property claimed before 23rd July 2024 can now have two Long Term Capital Gain (LTCG) computation methods;
- A 12.5% tax rate without indexation
- A 20% tax rate with indexation benefit
You can enumerate your house sales tax on the basis of these two methods and select the one that reduces more of your tax burden. The indexation benefit, available only for immovable properties, is applicable to house sale taxes.
The budget 2024 has also increased the LTCG tax exemption amount from Rs. 1.25 lakh to Rs.1.25 lakhs per annum. The LTCG rate on financial as well as non-financial assets has also increased to 12.5%. In the case of short-term capital gains (STGC), the tax will be charged at a 20% rate.
What Is House Sales Tax On Property Sales?
The Indian Income Tax Act levies taxes on any capital gains arising from the selling of property. The difference between the purchase cost of a property and its selling price is considered as an income, subjected to tax paying. The property can be residential buildings, land, automobiles, gold, equity, or funds. The capital gain tax is broadly divided into two types; the STCG and the LTCG based on the period of your acquisition of the property.
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Short-term Capital Gain
Assets that are held for less than 36 months are categorized under this section. But for immovable properties like homes, the duration is 24 months or less if the selling of property occurs after March 31, 2017.
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Long-term Capital Gain
If you hold your property for more than 36 months, it falls under the long-term capital assets group. But for immovable properties like houses, this duration is 24 months if the sale occurs after March 31, 2017.
In the case of short-term property holdings (less than 24 months), the profit of selling a house will be counted under your gross total income and tax will be deducted according to the tax slab rate at the time of annual tax filing. Whereas, in the case of long-term property holding (more than 24 months) the tax will be levied at a 20% tax rate. This rate does not include the indexation rates and may also differ according to the effects of inflammation. Completing your house sales tax considering the inflammation rates and index cost of acquisition can hence help you to minimise your capital gain and therefore your tax liability.
Ways to Save House Sale Tax When You Sell Your House
If you want to sell your house and save up some extra money from house sales tax, there are certain strategic ways for it. Below are the proven ways that can be used to save on the capital gain tax during the selling of properties;
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Availing Indexation Benefits
According to the inflammation rate, the property indexation helps you lower the capital gain amount and therefore tax levied on it.
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Reducing Selling Expenses
While calculating capital gains, deducting certain selling expenses can help you reduce the tax levied on them. For instance, you can put aside the brokerage fees while calculating the capital gain. Living or holding the house for more than two years (24 months) and keeping receipts of its renovation expenses too can help you lower your taxable amount.
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Joint Ownership
Opting for co-ownership will help you reduce tax liability as it will be divided among the co-owners. Each co-owner can manage to secure the tax exemption limits available for them thereby reducing the overall tax liabilities on them.
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Buying New Property
The most popular way of escaping house sale tax is to reinvest the capital gain amount in another property. You can either purchase a new property one year before or two years after the property sale. Otherwise, you can construct a new property within three years of selling your old one.
The house sales tax is a mandatory tax complied when you sell a property and gain profit out of it. However, you can make use of the above ways to minimise your tax liability upon selling immovable properties.
Also, Read – How to Claim Sales Tax Deduction on Foreign Real Estate
FAQs
1. What is the House Sales Tax in India on Property sales?
The profits that you get when you sell an immovable property such as a house get liable for house sale tax. Based on the tenure of your holding the property, you will have to pay the tax to the government of India.
2. What is the applicable tax rate on LTCG for real estate sales?
The LTCG tax is applied on house selling if the owner has owned the house for more than 24 months. Then upon selling the owner will have to pay a flat 12.5% tax to the government.
3. How to calculate LTCG if an immovable property is sold?
The simple formula to calculate LTCG is “LTCG= Sale Consideration – Indexed Cost of Improvement – Indexed Cost of Acquisition – Expenses”. The LTCG therefore requires to calculate the Indexed Cost of Acquisition and it is calculated by using the Cost Inflation Index.
4. Can I save the House sales tax that is to be paid if my property is sold?
Yes, there are several ways to save house sales tax after selling your property. You can save your taxes by utilising the money to buy another property or by opting for joint ownerships.
