If you have sold a house in the current financial year, then capital gains derived from such a sale will be taxable in the hands of a taxpayer. However, Income-tax Act, 1961 allows an individual to save on tax by long-term capital gains. Here’s how an individual can save tax on the capital gains derived from the sale of a house.

Tax on capital gain is triggered when a person transfers (by way of sale, exchange, conversion, relinquishment of right) any capital asset (such as house, land, building, equity shares, mutual funds etc.) and derives profit from such transfer. The seller of a property is liable to pay income tax if the sale of property has led to capital gains. Even though the seller cannot claim common deductions such as sections 80C, 80D etc. to reduce their tax burden, there are certain other ways to save income tax on capital gains derived from sale of property. Here is how you can do it.

Types of capital gains
The Income-tax Act, 1961 categorises capital gains into two types, ‘long-term’ and ‘short-term’, based on the period of holding of such capital assets.

For any property, (such as house, land and building) to be classified as a long-term capital asset, the said property should be held for more than 24 months from the date of its acquisition, else it will be considered as short-term capital asset. If the property is transferred before the expiry of 24 months, the gains would be short-term capital gain (STCG) or loss. If sold after 24 months, it will result in long-term capital gain (LTCG) or Loss.

Further, LTCG would be subject to tax at 20% with indexation benefit and STCG will be taxed at income tax slab rates applicable to the taxpayer.

How to save income tax on capital gains from house property

• Tax exemption under section 54 by investing in another residential house

Any individual taxpayer can claim exemption under this section if capital gains are derived from sale or transfer of a house. The tax exemption can be claimed if the house property sold resulted in long-term capital gains. Those gains must be invested in another residential house property in India.

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