Capital Gains Tax (CGT) – What is it?
Any gain or profit a person makes from the sale of a capital asset is subject to capital gain tax. The profit generated by the sale of the capital asset is subject to taxation under the "Income from Capital Gain" category. Selling the capital asset for more than it cost to buy it results in a profit. Since there is simply a transfer of ownership and no sale, the inherited property is exempt from Capital Gains Tax. The Online Income Tax Act of 1961 completely exempts any asset obtained as a gift through a will or inheritance. However, CGT will be applicable if the inheritor decides to sell the asset.
Tax on Capital Gains from Property:
The profit made from the sale of real estate is subject to capital gain tax; however, the tax is not applied to the entire profit. If a property is sold inside the three-year window, the proceeds will be subject to a short-term capital gain tax and will be taxed directly in accordance with the individual's income tax bracket. There is a flat 20% tax on short-term capital gains.
If the investment is made in the development and acquisition of Residential Property, the long-term gain from its sale is excluded from income tax under sections 54 and 54F of the IT Act, subject to a few restrictions. A person must purchase a residential property within two years of or one year before to the transfer of the original home in order to qualify for a tax exemption. Any properties that are currently under construction must be finished within three years of the original home's transfer date. It is crucial to keep in mind that any investment in real estate should be made in India.
The taxable advance for the sale of the house property is later fortified by the person for the sale of the apartment in the event that the deal falls through. The advance payment is taxed in the same year under the category of "income from other sources." The advance amount may be subtracted from the asset's acquisition cost in the year the capital asset is sold when calculating capital gains.
How to Reduce Capital Gains Tax When Selling Real Estate:
A landowner can realise significant capital gains upon selling their capital asset, which is land. On the other hand, agricultural land in a rural area of India is not regarded as a capital asset. Therefore, the selling of it does not result in capital gains. Make sure your asset is classified as a capital asset by Income Tax before we examine how your capital gains will be taxed.
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