How to Save Capital Gain Tax on Sale of Residential Property?
What is Capital Gain?
Capital gains tax on the sale of residential property is most unexpected tax which you pay because you rarely consider it before selling a property. Any profit or gain which you get from the sale or transfer of a capital asset will be called as capital gain. Capital asset could be anything from your property, any kind of security, jewellery, archeological connections, drawings, paintings, sculptures or any kind of art.
In case of selling of a residential property, capital gain can be categorized under two sections i.e. short term capital gain and long term capital gain. In case, you have sold the house within 3 years of its purchase, then the gain will be considered as a short-term capital gain and in case you have sold the house after 3 years of its purchase, then the gain from the sale of the house will be considered as a long-term capital gain.
In order to calculate short-term capital gain, you need to make certain deductions such as cost of its acquisition, expenses incurred during the process of sale and cost of improvements, if any from the total sale price. Calculation of long-term capital gain is similar to that of short-term, however, you need to include indexed cost of acquisition from the total sale price and also can claim certain exemptions in order to save on capital gains tax. Also, short-term capital gains are taxed as per income tax slab rates whereas long-term capital gains are taxable at the rate of 20%. Capital gains tax are quite a big tax however with a little bit of smart planning you can save capital gain tax on sale of your residential property.