Income Tax Filing: Capital Gains From Property Sale
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How do you account for income from the sale of real estate such as residential or commercial property , while income tax filing? Here are the basics.
Edited transcripts
Udayan Ray: Hi there! Welcome to FundooMoney web series on tax filing. We are discussing various aspects that people need to keep in mind while filing taxes. Now, one of the things that weighs in the minds of people is when they have done a sales transaction i.e. sold a real estate property or land in the previous financial year and how it is going to get treated for tax. We are talking about a transaction where people made money—you typically tend to make money on real estate transactions. How does one record this in a tax return? To help us understand and get some insights in this matter, we have got eminent tax expert Swami Saran Sharma with us. Welcome Swami!
Swami, somebody has sold a property last year and made money, what now while filing taxes?
Swami Saran Sharma: Once you make money, you have to account for it in your income tax. Any money made on sale or transfer of a capital asset is to be included as a capital gain. So, capital gain in these properties can be classified as short-term capital gain or long-term capital gain.
The test is that if you have held the property for three years and more, and then you transfer or sell it, then it is called a long-term capital gain. Otherwise, it is a short-term capital gain.
In case of short-term capital gain, there are no concessions. Entire money is included as your income and you pay taxes as per the applicable slab of taxation.
If it is a long-term capital gain, then of course, there is a concessional tax treatment to it. One can pay on the net capital gain, which is sale (proceeds) minus indexed cost of purchase, a flat 20% tax. There are other ways saving the tax.
You could purchase REC and NHAI capital gains tax saving bonds upto Rs 50 lakh. Or, if you invest the proceeds in a residential accommodation within a period of two years from the date of sale—you still save taxes.
Udayan Ray: So, these are the various treatments to save tax. If you have done some of these tax saving measures, like buying a bond, it is fine. Otherwise, you will need to go to the default option.
Of course, with any tax-related matter, a tax expert guiding you on your particular details would be the most accurate person concerned. However, this particular segment will help you ask the right questions and guide you towards the right direction.
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