Any profit earned beyond the given indexation of property in the long term is taxable at 20 per cent. According to the Income Tax Act, this comes under capital gains. The short-term capital gains tax is applied to the profit if the property is sold within two years of purchase while if the asset is sold after two years, then it attracts LTCG.
Suresh Sadagopan, founder of Ladder 7 Financial Advisories, said that if someone sells a property within two years of purchase, then he will have to pay short-term capital gain on it.
“Suppose a property is sold after two years, then he will have to pay Long Term Capital Gains tax. Suppose someone purchased a property for Rs 50 lakhs and sells it for Rs 65 lakhs after two years, if the index cost after two years is Rs 55 lakhs, then the person will have to pay 20 per cent LTCG on Rs 10 lakhs (Rs 65 lakhs-Rs 55 lakhs=Rs 10 lakhs). So up to 55, there won’t be any tax. So after paying 20 per cent on Rs 10 lakh, a person can utilise the amount as per his wish,” said Sadagopan.
He added that if a person is investing in a residential property, then at least 10 lakhs need to be invested into it as only then one can avoid paying any taxes.
“One can also invest in Capital gain bonds. So, if the person invests Rs 10 lakh into the capital gain bonds, it will be locked in for five years and after that, one can use this money as per his wish. However, the gains made are taxable in this case,” said Sadagopan.
