Tax Relief

All the things you needed to find out about tax relief on funding revenue

A phone call between two friends who are preparing to file their income tax returns leads to a conversation about the tax relief when selling a home.

Akhila: Hey Karthik, how was your Diwali?

Karthik: Big. I celebrated Diwali with my family members in our new house that we bought a few days ago.

Akhila: Super.

Karthik: We bought this new house earlier this year with the proceeds from the sale of our old house in RK Nagar. I actually wanted to call you to check the tax implications as this needs to be reported in the ITR for Fiscal Year 20-21 (AY 21-22).

Akhila: Since you have owned the old house for more than three years, capital gains are considered long-term. But since you bought a new home with those proceeds, your capital gains would be tax free.

Karthik: Yes, I heard something like that. Give me more details.

Akhila: An individual is eligible for capital gains tax exemption on the sale of a residential property if they purchased another residential property in India a year before or two years after the sale date of the old property. The relief will also be extended if a new residential property is built within the next three years.

Karthik: Okay. Since I bought my new home within two years, I tick the box for eligibility.

Akhila: To the right. If the value of the capital gain is equal to or less than the cost of the new home, the entire capital gain is not taxed.

If, on the other hand, the capital gain is higher than the cost of the new house, the difference between the two is taxed (LTCG at 20 percent with indexation advantage).

Karthik: Okay. I need to calculate my capital gain amount taking indexation into account.

AkhilaRemember, if your capital gains amount is less than two million rupees, you can use the amount to buy or build two (not just one) residential homes in India and still be eligible for capital gains tax exemption.

Karthik: I understand. Exemption is one thing I really like about income tax, and this capital gains relief is high on the list.

Akhila: You can bet on it!

Karthik: Are capital gains on other assets eligible for such exemption?

Akhila: Yes sir! Sections 54 to 54G provide relief for capital gains from more than ten transactions, such as z or the establishment of 54EC bonds.

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