Income Tax Rules: If you want to sell your old flat or residential house or are going to buy a new one after selling the old house, then the information given here can be helpful for you.
Do you have to pay income tax on the money received by selling my old house? How much money do you need to pay? And if a new house is bought with the money received from selling the old house, will there be any tax exemption? If you bought a flat or residential house years ago and now want to sell it, or are thinking of selling your old house and buying a new one, then many such questions must be coming to your mind. Let us know what the income tax rules say about these questions.
If you make a profit from selling any residential housing property, then you have to pay tax on it. Information about how much this liability will be is given in various sections of the Income Tax Act. According to the rules given in Section 48 of the Income Tax Act, if a residential house is sold within two years of purchase, then income tax will have to be paid on the profit made on it as per the slab rate. But if the same house is sold after keeping it for 24 months i.e. more than two years, then the profit made from it is considered as Long Term Capital Gain (LTCG), on which LTCG tax has to be paid at a concessional rate of 20 per cent.
The unique thing is that while calculating the profit from selling a house, not only the purchase price of that property is deducted from the selling price, but other expenses incurred at the time of purchase, such as registration charges, are also adjusted. Apart from this, if you have spent money on improving the property while holding it, you can also deduct the same from the profit. Apart from this, expenses incurred on selling the property, like brokerage, legal fees, etc., are also deducted from the profit.
Indexation benefit is also available on the profit made from selling residential housing property. For this, the purchasing price of the house is adjusted for inflation with the help of the Cost Inflation Index (CII). This index is released every year by the government. Due to this adjustment, the original price of the old house increases in proportion to inflation, which reduces the profit. And when the profit decreases, the tax on it will also decrease, which will benefit the home seller.
According to Section 54 of the Income Tax Act, if you make a profit on selling your old residential house and you buy a new residential property for yourself with that amount, then you can get an exemption in long-term capital gains tax on that amount. This exemption is available only to individual income taxpayers or Hindu Undivided Families (HUF). To avail of this income tax exemption, it is necessary for the property sold and purchased to be a residential house. Apart from this, it is also mandatory to buy a new house within 2 years after selling the old house. If you are building a house for yourself instead of buying a ready-made residential house, then instead of 2 years you can take 3 years. If you have purchased a new house up to one year before the date of sale of the old house, you can still claim exemption in LTCG tax on it. A maximum limit of Rs 10 crore has also been fixed for this exemption on LTCG tax. Under the new rules, now you can avail this exemption even if you buy two houses within 2 years from the profit made from selling one house. However, in such a situation, your total long-term capital gain should not exceed Rs 2 crore.