The Tax You Need To Pay After The Sale Of Your Property Investment

  Author: Sanjay Sharma

So, you have sold a property and have made handsome gains on the property investment. Before, you decide to start splurging on the just-received money, spare a thought for the money, you need to pay the taxman. Remember, there is a significant portion of the money that will need to be paid as tax. This tax is on the capital gains made by you on the property sale. So, how do you find out how much you need to pay as capital gains tax? Here are some broad directions.

Transfer of ownership and capital gains Since sale of property involves the transfer of ownership of a capital asset i.e. the house or a piece of land, any gains made has to be included as capital gains in your income. Now, the capital gain in properties can be classified as short-term capital gain or long-term capital gain.

Short-term and long-term capital gains If you have held on to the property for three years and more before selling it, then the gains you have made are long term capital gains. If the period is shorter, it will be classified as short-term capital gains.

In case of a short-term capital gain made from the property sale, there are no concessions. Entire money is included as your income and you pay taxes as per the applicable tax slab. 

In case of a long-term capital gain, there is a concessional tax treatment you are entitled to. You need to pay long term capital gains tax on the net capital gain. Net gain is the sales proceeds minus the indexed cost of purchase. You pay a flat 20% tax. That’s not all. You can adopt some other routes for saving tax.

Save tax with tax-saving bonds You could purchase REC and NHAI capital gains tax saving bonds for up to Rs 50 lakh. The other route is to invest the proceeds in a residential accommodation within a period of two years from the date you make the sales transactions. This will help you save significant amounts of long term capital gains tax.

Sale of property typically results in a large financial inflow. It is important for you to quickly figure out what belongs to the taxman and plan accordingly.