How To Save Tax When Buying Or Selling A Home

Regardless of the class or income that one belongs to, the Indian investment approach often focuses in buying real estate and gold. While purchasing and selling commodities like gold is a rather simple affair, the ball game is completely different when one starts to think about buying property. Buying, owning and eventually selling a home can be a daunting process and needs to be approached intelligently to make sure that you minimize your tax outgoings as much as possible.

·         Minimizing Tax while Buying a Home

Even if you have closed on what you feel is the most affordable property in Lucknow, your home is without doubt the biggest purchase you will make in your life. The government recognizes this and hence allows IT deductions in case you are buying your home on a loan. Borrowers are allowed to claim a tax deduction under Section 80C for an amount up to INR 1.5 lakhs. In addition to this, note that if the property is self-occupied, you will be able to take benefit of Section 249 (b) for an amount of INR 2 Lakh for interest on the home loan. If the property is not self-occupied, you can get the entire interest you pay to the lender deducted from your income.

To be able to truly benefit from these laws, it is recommended that a married couple take a joint loan that is divided into equal proportions. This allows each spouse to claim complete tax deductions for the interest and the principle. This holds true even for a parent and a child choosing to purchase a property together.

·         Minimizing Tax when Selling a Home

When you sell a property, you will be expected to pay tax on the profits you make. Furthermore, if the property has been sold within three years of its acquisition, you will need to also pay what is known as the Short Term Capital Gains Tax (STCG). In such a sitation, the profits are added to the income and then you are taxed based on the IT slab that you fall into.

If your property is held for over three years, you will be expected to pay a Long Term Capital Gains Tax (LTCG) which is 20% tax + surcharge and cess after adjusting all the gains due to inflation. This is calculated with the help of the inflation index which is issued by the government.

If you want to save the entire amount of tax due, the easiest route to take is to use the proceeds that equal the long term gains to purchase a new affordable property in Lucknow. This purchase should be made within one year before the sale date or two years after the sale date. Furthermore, you are given a leeway of three years in case the property is still under construction.

 

Remember that while calculating the short term or long term capital gain tax on the sale of the property, you have the right to deduct any amount spent on the improvement of the property and the cost of acquiring the asset. This includes costs such as legal fees, brokerage and stamp duty.