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HOW TO SAVE CAPITAL GAINS TAX ON THE SALE OF LAND

The land is a capital asset and as an admirable asset, the land owner can make huge capital gains from its sale. However, agricultural land in rural India is not considered a capital asset. Therefore, no capital gain applies to its sale. Before figuring out how your capital gains will be taxed, make sure your income tax understands your assets as capital assets.

Short-term or long-term capital assets.

Land held for a period of 36 months or less (i.e. up to 3 years) is a short-term capital asset. If held for more than 36 months, it is considered a long-term capital asset. Therefore, tax results vary according to the duration of your property.

How to calculate your capital gain

To reach short-term capital gains - the cost of acquisition, the cost of direct sale and the cost of modifications (if any) are deducted from the total sale price of the property (if applicable, we deduct the permissible concessions under 'see below' -> the resulting amount in the short term There is a capital gain.

In the case of long-term capital assets, the only difference is that one is allowed to deduct the indexed price of the acquisition / the indexed price of the correction from the sale price. Indexation is done by applying CII (Cost Inflation Index). This increases your cost base (and reduces your profits) because the purchase price is adjusted for the effect of inflation.

What are the tax rates?

• STCG is included in your taxable income and is taxed at applicable tax rates based on your slab. See latest slab rates.

 LTCG is taxed at 20%

Tax Section 54F exemption from your profits (if applicable for long-term capital assets)

If you use the proceeds from your entire sale to buy a home property, you will not have to pay any tax on your profits when - you meet all these conditions.

·        Purchase a home within 1 year before the transfer date or within 2 years thereafter

·        Build a house within 3 years after the date of transfer

·        You do not sell the house within 3 years of purchase or construction

·        The new home purchased or built must be in India

·        You must not have more than 1 residential home (excluding a new home) on the date of transfer

·        You do not purchase within 2 years after such date or build any residential house (excluding new home) within 3 years after such date.

When you meet these conditions and invest the proceeds from the sale for a new home - you will not pay any tax on your profits. However, if you invest a portion of the proceeds from the sale, the discount will be the sale price or discount of the amount invested, i.e. the cost of the new home x capital gain / net compensation.

By investing in a capital gain account scheme

Finding the right seller, arranging the necessary funds and preparing the documents for a new property can be a tedious and time-consuming process. Fortunately, the income tax department understands these limitations.

If you have not been able to invest your capital gains by the date of filing the income tax return for the financial year (usually July 31) of the sale of your property, you are allowed to deposit your profits in PSU Bank or any other bank. Banks as per Capital Gain Account Scheme, 1988. And claim in your return as a rebate from your capital gains, you will not have to pay tax on it.

However, the money you have deposited must be invested within the period specified by the bank, if you fail to do so, your deposit will be treated as a capital gain.

Author

Santosh Patil

Founder of Alliance Tax

ICA & MBA
9769201316

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