Real estate is one of the Choices of Investment avenue by many.It offers very good return and also a good hedge against the Inflation.
But the Capital gains tax on sale of Land is considered high by many and often look for opportunities to save tax on the same.
Here are the steps to calculate the Capital Gains Tax on sale of Land.
Step 1 :- Based on Period of Holding, ascertain whether it is Long Term or Short Term Capital Gain
The first and foremost aspect to be considered for calculation of Capital gains on sale of land is the period of Holding of the Land sold. We need to first determine whether it is a Long term Capital Gain or Short Term Capital Gain.
This is how you can find out whether it is Short Term (or) Long Term :-
If the Land is held by you for not more than 36 months immediately prior to its date of sale/transfer, It will be considered as Short Term Capital Asset
If the Land is held by you for more than 36 months immediately prior to its date of sale/transfer, it will be considered as Long Term Capital Asset
Step 2 :- Ascertain the Tax treatment for Capital Gains
If the Capital Gain is Short Term, the same is taxable at Normal Slab rates of tax as applicable to you.
If the Capital Gain is Long Term, the same of taxable at 20% subject to Indexation benefits.
Step 3 :- Calculate Capital Gains
Short Term Capital Gains
Find out the full value of Consideration (Sale Price)
You can Deduct the following :-
Expenses incurred on Sale.(Like Brokerage paid,Fees,etc., supported by documentary Evidence)
Cost of Acqusition/Purchase of the asset (As per the registered document executed at the time of purchase)
Expenses incurred for improvement (Like Land development charges, etc., supported by documentary Evidence)
Exemptions provided by Section 54B, 54D , 54G & 54 GA
The balancing amount is Short Term Capital Gains
Long Term Capital Gains
Find out the full value of Consideration (Sale Price)
You can Deduct the following :-
Expenses incurred on Sale.(Like Brokerage paid,Fees,etc., supported by documentary Evidence)
Indexed Cost of Acqusition/Purchase of the asset (As per the registered document executed at the time of purchase) The Cost inflation index can be found in this link.
Indexed cost of improvement (Like Land development charges, etc., supported by documentary Evidence)
Exemptions provided by Section 54, 54B, 54D , 54 G, 54 EC, 54 ED, 54EE, 54F,54 GA & 54 GB
The balancing amount is Long Term Capital Gains
Precautions to be taken for Sale of Land :-
1) Always buy/sell for not less than Stamp duty/Guideline Value.
2) Ensure you Pay/Receive the consideration in Non Cash mode (Crossed Cheque, Demand Draft,NEFT, Online Transfer etc.,) Any transaction of sale/purchase value exceeding Rs. 2 Lakhs should be only through non cash mode only as per provisions of Income tax Act. If the transaction is done in cash, the seller is liable to pay penalty which will be the Sale Consideration received in cash.
3) Before entering into the taxation,consult with professionals and ascertain the capital gain amount and also the ways of saving the capital gains tax. Remember, it should be done before the transaction and not after completion of the transaction.
There are many ways to Save Capital Gains tax. This will depend on various factors such as your readiness for reinvestment, requirement of sale amount for your other purposes and Cost-benefit analysis. It is necessary that action is taken before hand.
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