Selling a house and worried about LTCG tax? You can still pay zero tax u/s 54 despite the budget 2024 shock Revenue Secretary Sanjay Malhotra said "Tax kicks in only if the gains are not reinvested in a house. If you sell a house and you buy a house using only the gains, there is no taxation." Know how it works and what are the conditions
Owning a house is a significant investment for many people and selling it can result in a substantial amount of money. Since it is a capital asset, the seller has to pay a capital gain tax on selling a property. Budget 2024 has proposed to remove indexation benefits for homeowners. This essentially means that a homeowner who has made gains from the sale of his/her house now has to pay tax on the total gains and not the inflation-adjusted gains. Indexation benefits previously allowed homeowners to inflate their property's cost to factor in inflation, which lowered the net gains, and hence the seller needed to pay lower tax.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} Even though this benefit is no longer available, there is still a way you can save long-term capital gains when selling your property. Read on to know how.
Is there any way where you can sell your house for a profit and save on paying income tax after Budget 2024?
In an interview to the Economic Times, Revenue Secretary Sanjay Malhotra said "Tax kicks in only if the gains are not reinvested in a house. If you sell a house and you buy a house using only the gains, there is no taxation." Experts say that the revenue secretary is referring to provisions of section 54."As per section 54, any long-term capital gains on sale of residential house is not taxable if such gain is re-invested in buying residential house. This is subject to the fulfilment of certain conditions stated in section 54," says Parveen Kumar, Partner, Direct Tax at Dewan P N Chopra & Co.
A residential house property becomes a long-term capital asset if held for more than 24 months. If this is sold early, then the gains will be considered short-term capital gains and taxed as per the applicable slab rate of the seller. The deduction under section 54 applies only in case of long-term capital gains in the case of selling a residential house.
How is the deduction under section 54 calculated
According to Suresh Surana, a practising chartered accountant, the amount of capital gains exemption under section 54 will be lower of the following:Amount of capital gains arising on transfer (selling) of residential house; orAmount invested in purchase/construction of new residential house property (including the amount deposited in Capital Gains Deposit Account Scheme)
No tax on utilised gain but you need to pay tax on unutilised gains
Kumar explains with an example how section 54 can help you reduce tax when a house is sold. Example - A person term with long-term capital gains of Rs 5 crore on the sale of an old house and investing Rs 5 crore in a new residential house will not be liable to any tax as he is eligible for a deduction of Rs 5 crore under section 54. If the investment is, say, Rs 3 crore, the deduction will be Rs 3 crore, and the taxpayer needs to pay Capital gains tax on the balance of Rs 2 crore [5 crore- 3 crore].What are the conditions under which you can claim section 54 benefits if a house was sold
Kumar explains what the various conditions are (including a special condition imposed by Finance Act 2023) for availing section 54 deduction:Only one house can be purchased if gains is more than Rs 2crore: Taxpayers can buy/construct only one residential house in India and not multiple houses using the gains from selling the previously owned house. However, if the capital gains do not exceed Rs 2 crore, the taxpayer can buy up to 2 houses. This option once exercised, cannot be availed in subsequent years again. Such re-investment for the purchase of the house should be within 1 year prior or 2 years after the sale, leading to capital gains. Alternatively, the taxpayer can construct the house within 3 years to claim this benefit.
Total deduction limited to Rs 10 crore: The Finance Act 2023 (applicable from FY 2023-24 and AY 2024-25) has capped the maximum deduction available for investment in a new house at Rs 10 crore. For example, A person with capital gains of Rs 20 crore, investing Rs 20 crore in a new house, can avail deduction under section 54 of Rs 10 crore only. Investment above 10 crore needs to be ignored for the purposes of deduction under section 54.
Three years lock-in for newly acquired house: The new house property bought or constructed using gains from sale of the old house would be subjected to a lock-in of 3 years. "If a taxpayer claiming exemption under section 54 transfers the new house within 3 years from the date of its acquisition/completion of construction, then the benefit granted under section 54 will be withdrawn and accordingly, the cost of acquisition of the new assets would be reduced from the exempted capital gains," says Surana.
Surana informs that the option to acquire two houses (if the capital gains from the sale of the house are up to Rs 2 crore) is a once-in-a-lifetime option.
Park the unutilised gains in special bank account
Purchasing or constructing a new home can be a lengthy process, during which the funds from selling the previous home sit unused. If you have profits that you plan to use in the future to buy a new home or construct one, you should place the profits in a special bank account.Kumar says that any amount of gains not spent before the due date of filing ITR (with respect to the house sold) should be deposited in a Capital Gains Scheme Account (CGAS) maintained with authorised Banks. "Amount can be withdrawn from such accounts for utilisation in purchase/construction," he says.
"If you are not able to invest in another house, then the capital gains can be deposited in CGAS and then you can claim the tax exemption. However, this amount should be reinvested within 2 years, otherwise, the exemption might be revoked. The amount deposited in this account can be withdrawn for purchasing a house for the depositor's self-residence within 2 years of receiving the sales proceeds. If the amount is not used within this 2-year period, the long-term capital gain on the sale of the capital asset will be taxed in the year the gains were earned," says CA Abhishek Soni, co-founder, Tax2Win.
The maximum amount you can deposit in a CAGS account is Rs 10 crore.
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This story originally appeared on: India Times - Author:Faqs of Insurances
