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In the recent budget announcement, the finance minister has proposed to reduce the definition of ‘long term’ with respect to real estate from 3 to 2 years. This means that property seller will now benefit more from the tax deduction options available for long-term capital gains from sale of property.
Earlier, if you made capital gains on sale of property that was held for less than 3 years, then it will be termed as short-term capital gains.
Now this has been changed to 2 years. So capital gains made on sale of property held for more than 2 years will be termed as long-term capital gains. Such gains are taxed at 20% with indexation benefits.
That is not all. One can even avail tax exemption on long-term capital gains by either investing in another residential house or by investing in capital gains bonds issued by PSU companies.
It must be noted that if you decide to sell a property that is taken on loan, within 5 years from taking possession, then you will be required to treat the deductions claimed in earlier years too as income of the year in which you sell the property. So technically, all the tax benefits of previous years will stand reversed.
This is why a lot of people selling property in a hurry end up paying huge taxes. They are not careful and do not fully understand that repercussions of selling the property from tax angles. So in general, one should avoid selling the property that has been acquired just a few years ago as it will result in a lot of taxation (on your capital gains) and also, there is a possibility that your tax benefits of previous years will be reversed. So before deciding to sell a property, make sure you discuss it with your tax advisors.
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