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How Property Sale & Purchase Profit is taxed in India?

A number of us undertake the property transactions and onus lies on us to pay the tax on the profit generated from the sale and purchase of property.

An imp point to be considered is that when a property is sold within one year it is subjected to Short Term Capital Gain (STCG) and when it is sold after one year, it is subjected to  Long Term Capital Gains Tax in India (LTCG)

Rate of Long Term Capital Gains Tax in India (LTCG)

Long term capital gain tax rate in India is 20.6% of the profit after indexation of cost. Indexation means adjustment for inflation. The same is arrived with the help of CII which can be found for every year by googling for the information.

For e.g.

  • CII for FY 2005-06 as declared is 497
  • CII for FY 2008-09 as declared is 582

Now we can adjust all costs according to the CII figures. If the original cost in year 2005-06 is Rs 100 than its cost is Rs 117

Say now you sell it for Rs 200 than your profit is Rs 200-Rs 117=Rs 83 which is your long term capital gain and now on Rs 83 you need to pay tax @ 20.6%

How to save Long Term capital gains through legal means?

Here Section 54 of Indian Income Tax Act, 1961 comes to our help where it has been stated that Capital Gain under section 54 can be used for buying or constructing new house. If the amount of capital gain is greater than the amount buying a new house, the remaining amount of capital gain will be taxed.

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