How to save LTCG on purchase of house

Gain or profit made from sale of an asset is termed as capital gain and this is taxable as per provisions of the Income Tax Act. If the asset has been held beyond a stipulated holding period (12 months in case of equities, 3 years in case of debt securities, 3 years in case of land/house/property), then the gain calculated on the same is termed as long term capital gain. There are certain provisions under the income tax laws that provide for ways in which the tax on long term capital gains can be saved.

Sale of house

On sale of a property, if the proceeds are invested in purchase or construction of a house, the long term capital gain on the sale of property is exempted. The purchase of property can happen a year before the sale of property or two years after the sale. Alternatively, one can invest in infrastructure bonds notifi ed by the government. These investments have a lock-in period.

Sale of other long term assets

This provision is applicable to sale of assets held for long term as per tax laws, other than a house, eg. shares, mutual funds, commercial building, land, jewellery, machinery. If the proceeds received from such sale are invested in purchase or construction of a new residential property, then the tax on capital gains is exempted.

Set off provisions

Long term capital loss can be set off against long term capital gains made by the tax payer in that year.

Points to note

If the property purchased is outside India, the above exemptions will not be applicable.

It is advisable to take the advice of a tax consultant before carrying out above mentioned transactions.

Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.

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