Big news about income tax rules! Know these income tax regulations before to selling an old home; if not, well

 Big news about income tax rules! Know these income tax regulations before to selling an old home; if not, well

Big news about income tax rules! Know these income tax regulations before to selling an old home; if not, well

Income Tax Regulations: You should be aware of these income tax regulations if you are selling your previous home.

Real estate investing is popular. Residential real estate, or a home, works well for these folks. Often, individuals start off by purchasing a smaller home. They eventually sell it and purchase a new home. If you want to sell your previous home for whatever reason, you should be aware that the proceeds from the sale are subject to taxes. This implies that you could possibly be liable for taxes on the money. Let's examine this issue in its whole.

The proceeds from the sale of a home are taxed twice and are regarded as capital gains. The sale of the home after two years or longer will be regarded as a long-term capital gain. The amount of capital gains is subject to a 20 percent tax after the indexation benefit. Concurrently, any profit realized from the sale of the residence within a year will be regarded as a short-term capital gain. The profit will be included in the individual's normal income, and tax will need to be paid based on the applicable tax bracket.

How and when to save taxes

The income received from the sale of the previous home is exempt from taxation under Section 54 of the Income Tax Act (capital gain). Only long-term capital gains are eligible for this benefit. According to income tax rules, the seller's goal in these situations is really finding a suitable home for himself rather than making money from the sale of the property.

Which kind of property qualifies for a tax exemption when purchased?

It is stated clearly in Section 54 of the Income Tax Act that capital gains are to be utilized only for the purchase or construction of residential property. This implies that when buying commercial real estate, tax exemptions will not be granted. When it comes to land, you may claim an exemption equivalent to capital gains tax when you buy a plot and build a home on it. The tax exemption won't be limited to land purchases.

How much time will it take to purchase a home?

In order to qualify for tax exemption under Section 54, a new home must be acquired within two years of the date the previous property was transferred. On the other hand, if building is involved, the home should be finished in three years. You are eligible for the discount even if you purchase a new home a year before selling your previous one.

Under Section 54, there is a tax exemption when the long-term capital gain from the sale of a residential property is invested in another residential property. There may only be one exemption per property if two residential properties are built or bought with the proceeds of one. There is one exemption to this rule, however, in that a person may only use their capital gains from two homes throughout their lifetime, as long as they don't exceed Rs 2 crore.

Why open a CGAS account with capital gains?

If, by the time you file your ITR, you are unable to use the capital gain funds for purchasing a home, you will need to put them into a bank account under the Capital Gain Account Scheme (CGAS). You will be responsible for paying taxes if you don't. It's important to remember that even if you're holding money in the capital gains account, you still need to purchase a residential property within the next two years or have one built within the next three, failing which you'll have to pay long-term capital tax after the allotted time has passed.