Buying a house, a house, a shop has always been considered a great way of investment. If you sell the property you have bought after a few years, you can make huge profits. In recent times, to curb the rising prices of property, the government has announced to end the benefit of ‘indexation’ in the budget. After this, tax experts say that investors investing in property will have to pay more tax. Let us tell you that two types of tax, short term capital gain tax and long term capital gain tax, are levied on the sale of property. Let us know how you can save tax through section 54 of Income Tax despite the benefit of ‘indexation’.
What is the benefit of indexation?
Budget 2024 proposed the removal of indexation benefits for property owners. This means that a home owner who makes a profit by selling his house will now have to pay tax on the total profit and not on the inflation adjusted profit.
How to save tax on property sale?
Indexation benefits earlier allowed homeowners to increase the cost of their property keeping inflation in mind, which reduced the net profit and hence less tax payable by the home seller. Now this benefit is not available, but you can still save long term capital gains (LTCG) when selling your property through section 54 of Income Tax.
Tax experts say that tax on the sale of property is applicable only when the profit is not reinvested in buying a property. If you sell the house and buy a house using only the profit, then no tax is levied.” This is mentioned in the provisions of Section 54 of the Income Tax.
What do the rules say under section 54
According to tax experts, as per section 54, any long term capital gain on the sale of a residential house is not taxable if such gain is reinvested in purchasing a residential house. A residential house property becomes a long term capital asset if held for more than 2 years. If it is sold prematurely, the profit will be treated as short term capital gain and will be taxed as per the applicable slab rate of the property seller. It should be specially noted that the tax deduction under section 54 is applicable only in case of long term capital gain in case of sale of a residential house. You can also avail tax exemption by selling 2 houses and buying 1 house.
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