how to save tax on your house sale

Under some provisions in the Income Tax Act, you can cut down or completely eliminate tax payment on the gains that accrue because of the sale of a house or nay other non- commercial property.

Under normal conditions, when you make a gain on the sale of any property, you are liable to pay tax on these gains. If there is a difference of three years or more between the date of purchase and date of sale of any asset or property, the profit from the sale of the property is classified and termed as Long Term Capital Gain. Ion the other hand, if the difference is less than three years, the profit is considered to be Short Term Capital Gain. The tax rate for Long Term Capital Gain is 20% where as for Short Term Capital Gain is the same as your marginal tax rate.


Reinvest from house sale in a new house to save taxes :

If you invest your Long Term Capital Gain in another property, under Section 54 of the Income Tax Act, you are not liable to pay tax on the gain. But, there are some preconditions for this.

Firstly, only an Individual or an HUF(Hindu United Family) can avail this benefit.

Secondly, the gain must only be invested in another residential property ONLY.

Thirdly, the reinvestment must be made within an year or at the most two years of the sale of the first property. In the case of you constructing a new house, its construction should be completed within three years.

Lastly, this exemption can only be availed for one residential property.

This exemption under the Section 54 cannot be availed if you sell the house after holding it for three or less years. Besides, the lesser amount from the two: “capital gain from old property sale” or  “amount invested on second property” is eligible for the tax exemption.

Along with this, this exemption is not valid if you haven’t held the selling property for like three years. If the house is sold between three years of its purchase, the amount claimed for exemption under Section 54 is deducted from the acquisition cost of the new house.

The holding period of 36 months has now been reduced to 24 months in case of immovable property ( land or building or both). This has been in order to boost the ailing real estate sector and make it more attractive for the investors.

You are liable to deposit he unutilized amount of your capital gain in a Capital Gains Deposit Account in any public sector bank, If you haven’t utilized the whole of the gain amount before the date of filing your Income Tax Return. Afterwards, within a specified time limit, the amount can be withdrawn from this account for the purchase or construction of new house.


Indexation helps you to save taxes:

You are bound to avail indexation benefit on the Long Term Capital Gains. It is calculated using the simple formula:

Capital Gain= Selling Price- Indexed Cost of Acquisition    where

Indexed Cost of Acquisition=Purchase Price * (Index in Year of Sale / Index in Year of Purchase)

So, For instance, For a property purchase in the year 1994-95 @ Rs 20 lacks and the sale in year 2015-16, the gain isn’t directly 80 lacks, instead is calculated by the above formula:

Now, the index in 1994-95 stood at 259 and in 2015-16 at 1,081.

Hence, your indexed cost of acquisition will be = 20 x (1081/259) = 83.48

Your long-term capital gain will be = 100 – 83.48 = 16.52 lakhs.

 Invest in specified bonds for tax break:

There is another exemption on capital gains tax under the Section 54EC in the case amount has been invested in the bonds of REC (Rural Electrification Corporation) or NHAI (National Highways Authority of India). This is valid in the case the investment has been made within the six months of the selling of the property. With tenure of three years, up to 50 lacks can be invested in these bonds.

The government, in the Finance Bill 2017 has proposed that such type of investments can be done in any bond which is probably redeemable after three years, which in fact has been notified by the Central Government for that matter. This step has been taken in order to widen the scope of this particular clause. This amendment in the case is supposed to take effect from April 1, 2018. So, will be applicable for the financial year 2018-19 and further.

November 6, 2017 / by / in
Paying property tax in Delhi – Some simple and helpful steps

Here, we’re providing you a guide to pay property tax in Delhi. The people, who own residential or non- commercial property in Delhi, are accountable to the Municipal Corporation of Delhi (MCD) to pay property tax every year. The MCD has been divided into various sections based upon the location of property i.e. SDMC (South Municipal Corporation of Delhi), NDMC (North Municipal Corporation of Delhi), and EDMC (East Municipal Corporation of Delhi). Besides, Delhi is divided into another eight categories, depending on the property values in that location or colony from A to H. For these eight categories, the rate of property tax along with the unit area value varies for all the eight categories.

calculation of property tax for a residential property in Delhi: 

For the calculation of property tax in Delhi, the MCD uses the following formula known as ‘UNIT AREA SYSTEM’:

Property tax = Annual value * Rate of tax

(Annual value = Unit area value per sq meter * Unit area of property * Age factor * Use factor * Structure factor * Occupancy factor)

Rate of tax: For the categories A to H, rates for property tax are published by MCD every year.

Unit area of property: It is the constructed area which is taken into consideration for the calculation of the property tax. It is computed in square meters.

Unit area value: The variable values assigned per square meter for the constructed area of a property for categories A to H.

Age factor: Depending upon whether the property is old or new, this factor varies from 0.5 to 1.0.

Occupancy factor: Rental properties or lent out for any commercial purpose are often liable to pay higher tax than the self occupant ones.

Use factor: Non- commercial properties are taxed lower than the commercial ones.

Structure factor: Depending on the construction material and the structure of the building, RCC buildings are rated higher than the others.

Rebates on property tax in Delhi

On some of the property tax payments in Delhi, the MCD offers rebates:

  • You can avail a rebate of 15% on the total tax amount, if you pay your property tax as a hole in one go within the first quarter of the year.
  • Upto 100 sq meters of DDA/CGHS flats, you can receive a 10% rebate on the annual value of your property tax
  • 30% rebate on one property is given to women, senior citizens or physically challenged.


Paying your property tax in Delhi

For the most convenient way of paying the property tax is paying it online on the MCD website either through internet banking or credit/debit cards. To encourage the online payments, MCD has invested appreciably to make the sites more efficient and advanced.

After visiting the MCD website, you need to choose form the following options depending upon the location of your property.


The categories A to H are divided amongst these three corporations and you can visit their respective websites for further queries.

If you fail to pay the property tax on time, you are liable to pay 1% of Property tax per month on the unpaid amount. As soon as you make the payment online, check for the system that it has updated all your records and no unpaid amounts are shown against the account. Get the errors (if any) corrected immediately.

November 2, 2017 / by / in