3 Smart Tips To Prevent Long-Term Capital Gains Tax

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selling a property


For those who wish to make a great investment, real estate is an excellent choice. If you have the perseverance and financial resources to procure and maintain it, real estate can be undoubtedly profitable. But why? Investing in real estate can offer you continual indirect earnings. Therefore, if you have incest in real estate, it can give you a chance to develop wealth for future financial strength.


But as we all know that there are certain taxes and maintenance charges. Therefore it is necessary to get both technical and practical knowledge. Various studies also ascertain that real estate is an incredible long-run investment option for excellent returns. Among various taxes, the capital gain tax is a notable one. Capital gain tax often seems unexpected for most people. Now, what is a capital gain tax? 


Definition of Capital Gain Tax


  • As the name implies, the capital gain tax is the income when you sell a property asset. It could be anything like land, residential houses, commercial buildings or any other real estate property. The charged rates are 20% for LTCG or Long Term Capital Gains and STCG or Short Term Capital Gains relying on a person's tax frame. Capital gains taxes are of two types.
  • LTCG or Long Term Capital Gains is a sale of property scheduled for more than two years.
  • STCG or Short Term Capital Gains is a sale of property scheduled for up to two years.
  • In some situations, when you sell a property, the amount of capital gain tax can be great. This tax completely depends on whether it is a short-term or long time investment. Short-term capital gain tax generally adds to your taxable fee. You need to expend the amount of income tax as per numerous tax slabs. Long-term capital gain taxes captivate 20% tax on the gains. 

Now, there are pretty such ways by which you can save on capital gains taxes in India. Below are some best ways by which you can reduce it. Generally, the capital gain tax which you need to pay while selling a property is in the number of lakhs. Nonetheless, you can reduce it by obeying the below-mentioned points.


Applying Section 54F


  • The very first method of reducing capital gains taxes is the exemptions under Section 54F. Oftentimes, people sell their old houses to buy new houses. In such a context, you can make property investments with the sale income collected from selling your old property. If you do so you are free from paying capital gains tax under Section 54F. But for that, you need to buy a new property one year before selling your old house. 

You also can't sell the new house for the next three years of your purchase or home completion date.  Nowadays, Section 54F is only applicable to one residential property. It authorized the sale of non-residential property to buy a residential property. If you utilize the whole capital gains for the buying of the new property, then there is no need to expend any capital gains tax.


Buy Capital Gains Contracts Under Section 54EC


  • The next way to reduce the capital gain tax is by purchasing capital gain bonds. Now, if you are selling a possession but are not interested in buying a residential possession, then this option is a perfect one. Because if you buy capital gains bonds using the sale proceeds, then it would be exempted from capital gain tax. These bonds can provide an annual interest of 5-6%, which is inferior to the FD rates. 
  • You should invest the dividend within six months of selling the possession. You cannot auction or switch these bonds to anyone. Capital gains contracts are highly safe and therefore possess AAA ratings. The lowest investment amount is 10000 rupees and the highest amount is 50 lakhs. You can get these bonds from chosen banks easily.

Financing in Capital Gains Accounts Scheme


The next strategy for reducing capital gain taxes is Capital Gains Accounts Scheme. Buying a new residential property can be time-consuming. Therefore investing in capital gains accounts can be profitable. You can invest the money you get by selling a possession in a public sector bank or other banks. Always choose banks that are authorized by the capital gains account scheme of 1988.


So these are the three most suitable ways by which you can get exempted from paying capital gain taxes.


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4 Comments

  • Admin

    CIP Texas

    15 February, 2023 at 1:59 pm

    Blog was worth reading. Keep posting more.

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    Bodhivriksha

    31 January, 2023 at 3:53 pm

    Nice blog thanks for uploading

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  • Admin

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    14 January, 2023 at 5:45 pm

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    K R Natarajan

    14 January, 2023 at 8:46 am

    Thanks for sharing the post of 3 Smart Tips To Prevent Long-Term Capital Gains Tax

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