Written by : AK Agrawal

An experiences Chartered Accountant and Techno-Functional consultant working in industry for over 10 years dealing with multinational corporate clients. He is loves reading latest trend of technology trend.

How to save Capital Gains Tax in India?

AK Agrawal
AK Agrawal, Chartered Accountant

Jun 5, 2021 02:53

If you are in desperate need of money chances are you will either sell your inherited property, vehicles, or any other assets that hold a sizeable monetary worth. These possessions that you own are termed capital assets. When you sell assets with a significant value it is regarded as an income, and the rules insist that you need to pay tax from these income gains. But what if you are in an adverse situation where paying a huge amount to the State is not affordable for you? Thats’ when knowing the tips and tricks to save your capital gains tax can prove handy. Our Gotaxfile team is here to offer some useful info about the realm of capital gain taxation in India and how you can optimize your capital gain tax liability.

What is Capital Gain Tax?

The tax imposed on the income obtained from the gain on the sale of equity shares and equity mutual funds is termed as capital gains. It can be categorized into long-term and short-term based on the duration the assets are held by you. Long-term equity shares were exempted from being taxed before, but about 15% tax is imposed on the short-term equity shares. According to the relevant alterations in the Income Tax regulations, long-term equity shares become 10% taxable if the profit is more than Rs. 100,000.

While there is no excuse for avoiding short-term tax, you can reduce long-term capital tax gains in many ways. This guide will help you to make significant exemptions on long-term capital gain tax.

Before going into detail, let’s take a detailed look into what are short-term and long-term assets.

Short-term capital assets

Short-term assets are capital possessions held by you for a period of 36 months. In the case of immovable properties such as land, or building the standard duration has been reduced to 24 months. If the equity share is included in any popular stock exchange in India or a unit of UTI or a unit of an equity fund or a zero-coupon bond, then the shares held less than 12 months are considered as short-term capital assets. If it is a tangible property like a building, land, or an unlisted company, that is held not more than 24 months also qualify as short-term capital assets.

Long-term capital assets

If the ownership of the equity shares surpasses 36 months before the sale then these assets are referred to as long-term capital assets. Income from all unmovable properties held by you after 24 months of time also comes under long-term assets. However, movable properties like pieces of jewelry are not included in the list. For instance, investments, bonds, equity shares, etc. are long-term capital assets. A rate of 10% will
be charged from the equity shares or mutual fund investments sales that exceed 1 lakh and others will be taxed at the rate of 20%.

Short-term Capital Gain Tax Exemptions

Section 54B – This section can be also applied to the long-term capital gains. It comprises the sale of agricultural land to reinvest in other land purchases. The land should be bought within a time span of 2 years. If the value of the land has reduced than what was sold, then it is taxed subsequently.

Section 54G – If the gains are reinvested for the acquisition of the same assets then the profit from the transfer of land, infrastructure, or equipment to shift from urban to rural space will not be included in this segment.

Section 54GA – This section is pertinent for the handover of assets like land, buildings, or equipment from a city landscape to Special Economic Zones following the prerequisites of Section 54G.

Section 54GB – Capital gains from the transaction of property amid 1st April 2012 and 31st March 2017 are also exempted if the obtained income is invested in equity shares from a recognizable company.

Long-term Capital Gain Tax Exemptions

Section 54 Exemptions on house properties

When capital gains are reinvested for purchasing or constructing two qualified house properties, then you are exempted from long-term capital gain tax as per Section 54. This reduction is only a once-in-a-lifetime opportunity provided the profit from the sale does not go beyond Rs 2 crores. Only the amount of capital profit is required for investment. If the price of the newly bought property is higher than the sum of capital gains, then the exemptions are restricted to the total capital gain on the sale. Keep in mind that if the property is again sold within 3 years of its purchase or completion of its construction then these tax benefits will become taxable. Follow these requisites to unlock this advantage:

  1. Purchase the new property after 2 years of the sale or before 1 year of the sale.
  2. Invest the profit in the construction of the property. Nevertheless, the construction should be finished within 3 years from the date of sale.
  3. Only 1 house property can be purchased or constructed from the capital rewards to get this benefit.

Section 54F Sale of Other Assets

These reductions are applicable to all capital gains from the sale of long-term assets. House properties are excluded from this category. Instead of investing only on the capital gain total sale considerations are looked into under this section to request an exemption. Acquisition of the new possessions by one year before the sale or 2 years after the sale of the property. The gains from the sale can be also invested in the construction of a property. You are entitled to complete the construction within 3 years. Only one house property can be purchased to claim the benefit. If you completely invest the sale gains on the new house then your full capital gain will be taken away from taxes provided you qualify the above-mentioned conditions.

Section 54EC Immunity on Sale of House Assets on Reinvesting in Bonds

You are exempted based on this section if the capital gains from the house properties are reinvested in specific bonds. If you do not want to spend your profit on the first property in a similar purchase, then you are free to reinvest it in bonds that come within the limit of Rs 50 lakhs issued by the National Highway Authority of India or Rural Electrification Corporation. This money can be later redeemed after 33 years, and not before this period. However, this time-lapse was further increased by FY 2018-2019 to 5 years. A 6 month time is allocated to invest in these specific bonds.

Gotaxfile can help you lower your Capital Gain Tax Liability!

If you are confused and feel lost amidst all such capital gains tax complications, then do not worry. This is where Gotaxfile comes in. We help you to identify areas where you can save capital gain tax. Every loophole is identified by our experts and we will give you a comprehensive solution for all overlooked tax exemptions. In fact, there are many areas that are disregarded while calculating tax and all these are analyzed and studied by our professionals. We bring you the biggest save and the biggest gain.

AK Agrawal
AK Agrawal, Chartered Accountant

Jun 5, 2021 02:53

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