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  • Kanopy Content Team

9 Ingenious Ways to Save Tax When Selling Your House: A Comprehensive Guide

"Image depicting a maze in the shape of a tax form, symbolizing the complexities of capital gains tax planning."
"Navigating the Tax Maze: Effective Strategies for Capital Gains Tax Savings"

Selling a house is a significant financial decision, and the tax implications can be complex. But did you know there are multiple ways to save on the capital gains tax when you sell your property? In this comprehensive guide, we'll explore nine different strategies to help you keep more of your hard-earned money. Whether you own villas in Bangalore, flats in Bangalore, or any other type of property in Bangalore, this guide is for you.

Understanding Capital Gains Tax: One of the Ways to Save Tax When Selling Your House

Whenever you sell a property, you're subject to capital gains tax. If you've held the property for at least two years, it falls under long-term capital gains, taxed at a flat rate of 20%. The tax is calculated on the profit earned after considering inflation and the indexed acquisition cost. Indexation is a technique that adjusts the asset's price according to the inflation index, effectively reducing your gains and, therefore, your tax liability.

According to ClearTax, "Under long-term capital assets, the benefit of indexation is available. Plus, individuals in the 30% tax bracket get the advantage of paying the lower tax rate of 20%."

Expert Advice on Tax Savings

Ankit Jain, Partner at Ved Jain & Associates, outlines several ways to save on capital gains tax when selling a property.

1. Leverage Indexation

One of the most effective methods to reduce your tax liability is by taking advantage of indexation benefits. This adjusts the purchase cost to account for inflation, lowering your capital gains and the tax on it. You should hold the property for at least two years to leverage this benefit.

2. Opt for Joint Ownership

If the property is co-owned, the capital gains from the sale can be divided among the co-owners based on their ownership share. This allows each co-owner to utilize their basic exemption limit, potentially reducing the overall tax liability.

3. Minimize Selling Expenses

When calculating capital gains, you can deduct certain selling expenses like brokerage fees, which lowers the capital gains and, consequently, the tax payable and apply ways to Save Tax When Selling Your House

4. Reinvest in New Property (Section 54)

One popular way to save tax is by reinvesting the capital gains into another residential property. The new property must be purchased one year before or two years after the sale or constructed within three years post-sale.

5. Explore Other Residential Properties (Section 54F)

If you sell an asset other than a residential property but use the proceeds to acquire a new residential property, you can claim an exemption under Section 54F.

6. Invest in Bonds (Section 54EC)

If you're not interested in reinvesting in property, consider bonds specified by the government. These bonds have a lock-in period of 5 years and must be purchased within six months of the property sale.

7. Tax Loss Harvesting

This strategy involves selling securities that have experienced a loss to offset taxes on gains and income.

8. Capital Gain Account Scheme (CGAS)

If you can't find a suitable investment, you can deposit your gains in a CGAS account and claim exemptions while filing your tax returns.

9. Reinvest in Manufacturing Companies (Section 54GB)

A lesser-known provision allows you to reinvest long-term capital gains into the shares of a manufacturing company. The limit for such reinvestment is Rs 50 lakh.

Kanopy Ventures: Your Tax Planning Partner

At Kanopy Ventures, our in-house financial team can assist you in navigating the complex landscape of real estate tax planning. Whether you're looking at villas in Bangalore, flats in Bangalore, or other properties in Bangalore, we've got you covered.


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