HOW TO DEAL WITH CAPITAL GAINS FROM REAL ESTATE

When you sell a capital asset at a price higher than its cost of acquisition, you have made a capital gain. Capital gains can be made on the sale of property, stocks, mutual funds, bonds, or anything else that may classify as a capital asset. A capital asset can be either short term or long term. Capital gains attract taxes, but taxation rules-including the rate of taxation-varies from one asset class to another. Here, we will look at capital gains from the sale of property, and the measures you can take to save taxes on those gains.

SHORT TERM CAPITAL GAINS

An asset is classified as shortterm or long-term depending on how long it has been held by its owner. For immovable properties, assets held for 24 months or less since the date of registration or grant of occupation certificate are considered short term. The gains from the sale of such an asset are taxed as per the income tax slab of the seller during the year of sale. For example, you purchased a residential property for `50 lakh in July 2017 and sold it in May 2019 for `60 lakh. Since your ownership was less than two years, the asset is considered short term. Your short-term capital gains of Rs. 10 lakh will be taxed at your slab rate. If it’s 30 per cent, you will pay `3 lakh as taxes along with applicable surcharge and cess. While calculating your acquisition cost, you can include the cost of home improvement, commission, brokerage, etc.

Adhil Shetty