Selling a Property In India, people invest in various things to make money, like stocks, mutual funds, bonds, and real estate. Among these, real estate is the most common investment for Indian families. A report by the Finance Household Committee of the Reserve Bank of India says that, on average, 77% of an Indian household’s wealth is invested in real estate.
But, if you make money by selling property in India, you need to know that the profit you make isn’t entirely tax-free. According to Indian income tax laws, you have to pay income tax on the profit you make from selling property. The rate of tax depends on the type of property and how long you owned it before selling.
Understanding Capital Gains and Taxes in India
Any profit you make from selling things like gold, shares, mutual funds, or real estate is called capital gains. In India, there are two types of capital gains taxes: Long-Term Capital Gains Tax (LTCG) and Short-Term Capital Gains Tax (STCG), based on how long you held the property.
Long-Term Capital Gains Tax on Property
If you own a property for more than two years, the profit you make from selling it is called long-term capital gains (LTCG). The current government rate for LTCG tax on property in India is 20%. So, if you sell your property after holding it for more than two years, you have to pay 20% tax on the profit. There are some deductions you can make while calculating this tax, like subtracting the commission paid to an agent or any extra costs for home improvement.
Short-Term Capital Gains Tax on Property
If you sell a property within two years of owning it, the profit is called short-term capital gains (STCG). The tax on STCG is added to your annual taxable income and taxed at your income slab rate. For example, if you make a short-term gain of ₹5 lakhs and your tax rate is 30%, you have to pay 30% tax on ₹5 lakhs, which is ₹1.5 lakhs. Just like with LTCG tax, you can subtract brokerage and home improvement costs from your taxable income.
Proposed Changes for 2023
The government is planning to make changes to the capital gains tax structure in India. After 2023, all types of assets that can make capital gains, like shares, mutual funds, and properties, might attract the same LTCG and STCG tax rates.
In Conclusion
Calculating capital gains tax in India can be complicated. It’s a good idea to get help from a property tax consultant or advisor to figure out how much tax you have to pay. These professionals can also help you reduce taxes and make the most profit.
