Thursday, May 30, 2019

Tax saving tips: Invest in real estate and save tax on LTCG


Taxpayers can save the taxes on the gains by availing the benefit of tax exemptions allowed under the Indian tax laws.


Investments in real estate are borne out of savings made out several years of earnings. These investments have both monetary value and emotional value for investors. 

Individuals buy and sell real estate to reinvest in upcoming real estate projects, to meet growing family needs, to move to another location of choice etc. Since real estate investment involves a large amount of money, the sale of property results in large gains. Tax may have to be paid on these gains unless they have been invested. Let’s find out how to save tax on sale of a property.

Taxpayers can save the taxes on the gains by availing the benefit of tax exemptions allowed under the Indian tax laws. The law allows a taxpayer to invest in real estate and avail the benefit of exemptions on taxable gains realised on the sale of assets or real estate.

A.Tax saving exemptions:
I.Investment in real estate upon exit from a real estate property
Individuals who have earned gains upon exit of a residential house and wish to reinvest in another residential house can avail of an exemption from taxation of the capital gains.

For example:
Mr A sells his residential house on 5th April 2018 for Rs 50,00,000. Mr A had bought the house for Rs 20,00,000 on 25th March 2013. With the proceeds of the house, Mr A purchases a new residential house for Rs 60,00,000.

To claim this exemption the property which is sold should have held by a taxpayer for more than 2 years.

The above exemption is now extended w.e.f 1 April 2019 to investment in 2 residential properties (once in a lifetime benefit), the one condition being that the gains are not above 2 crore rupees.

II.Investment in real estate upon the sale of any other asset
Individuals who have earned gains upon sale of any other asset and desire to invest in a residential house can avail an exemption from taxation of the capital gains. Other assets would include land, gold etc.


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