How To Maximize Profit From Selling Your Home

If you want to sell your ready to move in property in India and the sale of a property is confirmed, a lot of money comes to the hand of the seller. The fund must be dealt with carefully or else one will have to pay a huge amount as taxes. Much like any other assets, selling your apartment will also attract capital gains tax. The tax is applicable on the difference between the cost of buying the home and the amount realized upon selling it. One can claim deductions such as stamp duty and registration fees as cost of acquiring the property. The difference amount is then inflation adjusted using the cost inflation index and then taxes.

Capital gains taxes on property can be broadly classified into two:

1. Short-Term Capital Gains Tax

If you have held a particular property for less than three years, short-term capital gains taxes are applied. The amount is added to your income for the year, and according to the tax slab in which it is slotted, taxes have to be paid.

The standard deductions that are applicable on income such as those under Section 80C are not applicable here. 

2. Long-Term Capital Gains Tax

The resale apartments in India that were held for more than three years attract long-term capital gains taxes of 20% flat. If the property was gifted to you, then the gain on capital is computed on the basis of the cost of acquisition by the original owner.

There are several ways in which you can handle the money received from the sale of property in India.

Here are the top three ways to save taxes:

A. Buying or building a home

If you buy a new home or build one using the capital gains proceeds within two years of selling your property, the tax payable shall be nil. You could also plan in advance and book a flat from the upcoming apartments in India or upcoming flats for sale in Delhi. The expenses that arise from it can be paid by the amount received from the sale of property in India.   

If you are building a home, its construction must be completed within three years of selling the older property. You should also bear in mind that you can purchase only one property with the earning and not multiple ones to get tax benefits.

B. Investing in Capital Gains Account Scheme

If you are unwilling to rush to make an investment, you can invest in a Capital Gains Account Scheme with your bank. The bank will inform the taxing authority that you intend to invest in residential projects in India or in upcoming properties in Delhi but at a later date. The deposits made under a CGAS can be exempt from taxes only if the following conditions are met:

• The deposit must be complete prior to filing income tax returns for the year in which the sale was completed.
• The interest payable is not tax exempt
• The funds must be used to buy a new apartment in India or build one within a particular period.
• The funds withdrawn must be utilized within 60 days.

C. Just as one stands to make capital gains from the property sold, there may be capital loss as well because of distress selling or unfavourable market conditions. If such a loss is borne during a short-term period, it can be offset against capital gains from long-term or short-tern sales of other assets such as equity or gold. However, long-term capital losses cannot be offset against short-term capital gains from other assets.

If you have handed over your property to a developer for reconstruction, it is viewed as a sale and is liable to pay tax. However, these capital gains can be offset when you get the property back.