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Anna Covaco is selling her ancestral property - some land worth nearly Rs 10 cores nowadays. Being a senior resident, she has put your ex son John in-charge to dispose of the asset. To be eligible for tax exemption, John was advised that he needs to invest in another property within annually. Still confused, he has approached a financial advisor that can help him out with the actual nitty-gritties. Buying property for expenditure purposes and selling it later with a higher price has changed into a common habit. There is surely an aspect of these transactions which works with the tax on the profits gained, which the seller needs to know. If you sell real estate investment for a profit, you will need to pay capital gains tax on the money. The tax differs, depending on the time period the property was held through to. "Capital gains tax is definitely aspect which every property seller should consider in a cost-sensitive industry. The sale of home involves short-term capital gains tax if it had been sold before the completion of three years of purchase”, says Badal Yagnik, Coping with Director - Chennai along with Coimbatore, Jones Lang LaSalle Asia. "The tax authorities will look at the profit you generated by the property sale as regular income to the year and apply levy accordingly. If the property was sold after three years of its purchase possessing elapsed, long-term capital gains tax for the rate of 20 percentage after indexation becomes applicable", he / she adds. The gains because of this asset is added for the investor's income and taxed according to the income slab he / she falls under. For example, if an investor falls underneath the tax slab of 30 percent, the gain will also be taxed for the rate of 30 percentages. The tax on this type of gain is not eligible to any kind of exemptions. When it concerns long-term capital gains, which occurs when people sell a house after a period of three years, tax calculation involves what is recognized as indexation. The acquisition cost from the asset is recalculated determined by indexation, which factors inflation in its calculation with the Cost Inflation Index. The power is that the tax with a long term capital acquire is taxed only with a 20 percent rate after indexation. This brings down how much tax payable considerably as compared with the short-term capital acquire tax. Apart from this specific, you might be able to avoid paying tax on the sale on the town, and you also have methods of reducing the tax burden following the sale of real estate. "In India, a common procedure that is followed is to sell the home at an under-valued rate to anybody you like or in pieces to save on the tax portion, making such transactions types of black money", says Philip Varghese, a financial advisor. There are provisions in the Income Tax Act, which can help you in taking necessary activities to avail the exemptions accessible. The Income Tax Act exempts the capital gains from the sale of your house if the taxpayer invests the gains in a residential property within couple of years from the date associated with sale or constructs another house within three years from the date associated with sale. This means, you cannot buy a commercial property or land to save tax - you need to necessarily buy residential property only. If the property is under construction, the two-year period is further enhanced to three years. However, you should not own many house, besides the house you're investing in.
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