Its critical to keep an eye on the calendar when

you sell your house. If you dont time it well, you

could end up paying a hefty tax. If a property is
sold within three years of buying (acquiring) it,
any profit from the transaction is treated as a
short-term capital gain in the hands of the
individual. This is added to the total income of
the owner and taxed according to the slab rate
applicable to him. For those earning over Rs 10
lakh a year, this shaves off 30% of the profits
from the sale consideration.
house property is sold within five years of the end of the financial year
it was purchased, the tax benefits claimed go out of the window i.e. tax
which were claimed earlier will have to be reversed. The tax deduction
for the principal repayment, stamp duty and registration under Sec 80C
sed and the amount becomes taxable in the year of sale. Only the
n of the interest payment under Section 24B is left untouched.
hy, from the tax point of view, it is advisable to hold a property for at
e years. If you sell a property after three years, the profit is treated as
capital gains and taxed at 20% after indexation. Indexation takes into
account the inflation during the holding period and accordingly adjusts the
purchase price, thereby slashing the tax burden for the seller. There are other
benefits too. The owner can claim various exemptions in case of long-term
capital gains, but no such benefit is provided for short-term gains.
Expenses incurred on repairs and renovation can be added to the cost of
acquisition of the house while computing long-term capital gains. Also, the
interest paid during the pre-construction period of the house can be added to
the cost, if not already claimed as a deduction earlier, points out Vaibhav
Sankla, Director, H&R Block India.
How to avoid tax
There are several ways to avoid paying tax when you sell a house. There is no
tax to be paid on the gains, if you use the entire gain from the transaction to buy
another house within two years or construct another house within three years.
The two- and three-year period applies even if you bought another house a
year before selling the first one. But the property should have been bought in
the name of the seller.
In case the entire capital gains are not invested, the balance amount is charged
to longterm capital gains tax. However, the entire tax exemption will be
reversed if the new property is sold within three years of purchase or
construction. In such a case, the entire capital gains from the sale of the
previous house will be considered as short-term gains and taxed at the normal
slab rates.
If you are not keen to lock-in your gains from sale of the house in another
property, there is another way out. You can claim exemption under Section 54
(EC) by investing the long-term capital gains for three years in bonds of the
National Highways Authority of India and Rural Electrification Corporation
Limited within six months of selling the house. However, one can invest only up
to Rs 50 lakh in these bonds in a financial year.
Selling a house? Watch out for tax implications
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Last date for filing original FY2014-15 ITR was
31.3.2017: If you missed this too, here's what to
do
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