How to save Capital Gains Tax on Sale of Land?

An investment made to acquire land, property, building, and so on  is referred to as a capital asset, and the profits earned from trading it is known as capital gains. Agricultural land in a rural part of India, on the other hand, is not regarded as a capital asset, and due to this, there are no capital gains on its sale.

Any profit derived from the sale of a capital asset is referred to as a capital gain. According to the Income Tax Act, capital gains tax is not payable in India if someone acquires an asset but do not sell it. Assets received as gifts are also exempted from paying tax. However, If the individual who has obtained the asset decides to sell it, he/she will have to pay the tax applicable on the profit. 

Types of Capital Asset

Short Term Capital Asset/Gains  (STCG)

A STCG is kept for 36 months or less than that. From Fiscal Year 2017-18, the 36 months requirement for immovable items such as land, buildings, and houses has been decreased to 24 months.

Long Term Capital Asset/Gains (LTCG)

The assets kept for the duration of more than 36 months are classified as LTCG.

Applicable Tax Rates

STCG	Without security transaction	Applicable capital gain is reported on your tax return and you will have to pay according to the income tax slab
STCG	With security transaction	15%
LTCG	Equity shares	10% of the value for the shares more than Rs. 1 Lakh
LTCG	Except for equity shares	20%

 

How to save Capital Gains Tax on Sale of Land?

LTCG and STCG have different ways to save tax on the sale of land. 

LTCG

Here are the ways to save capital gains tax under LTCG.

Through Section 54F

If you are considering buying a house, you can save yourself from paying capital gains if you fulfil the following situations: 

• Buy a home within one year prior to the transfer date or after two years of the transfer date
• Build a house within three years after transfer date
• Try to sell the house after three years of its construction or purchasing date
• Try to avoid buying more than one resident on the transfer date

Invest in Capital Gains Account Scheme (CGAS)

You can deposit the earned profit amount in any public sector bank under the Capital Gains Account Scheme (CGAS). You can invest in this CGAS programme for three years. The deposit in this CGAS account must be made before filing or registering an Income Tax Return (ITR), as well as the investment in the CGAS must subsequently be indicated in the ITR.

Invest in Bonds

You can invest in certain financial resources to save yourself from paying the capital gains. LTCG are exempted under Section 54EC, Indian Income Tax Act, 1961. Therefore investing in such capital instruments might help you save your hard-earned capital gains.

However, to get this capital gains tax break, you must invest the money in bonds before exceeding six months after transferring the money and realising the profits. Furthermore, as a lock-in term, the money must be invested in these bonds for a minimum of three years.

STCG

Here are the ways to save capital gains tax under STCG.

• For inhabitants under the age of 60, income tax would be excluded on property sales if the benefit value does not exceed Rs. 2.5 Lakhs.
• For senior citizens (60-80 age group), income tax would be avoided on property sales if the benefit amount does not exceed Rs. 3 Lakhs.
• For senior citizens above 80 years, income tax will be exempted if the profit does not exceed Rs.5 Lakhs.
• Income tax shall not be imposed on property sales if the gain value does not exceed Rs. 2.5 Lakhs for Hindu Undivided Family (HUF)
• Income tax will not be charged on property sales if the value does not surpass Rs. 2.5 Lakhs for non-resident Indians.

Concluding Comments

Dealing in real estate assets may help you build properties that will provide you with economic resilience in the future. Hence, by taking advantage of the tax-saving measures for LTCG and STCG, you may get the most out of your investment.