A capital gains tax is one that is levied upon the profit incurred
through the sale of an asset when the value of the asset has increased
by a considerable amount from the original amount at which it was
bought. The common assets that are taxable under this law are shares,
real estate properties, bonds and metals. In most cases the asset is
essentially a residential property meaning a flat or an apartment. This
means that if you have bought a house recently for a fixed sum and are
going to sell it in the future once the value of the property
appreciates, then the sum of the profit that is obtained from such a
sale would be taxable under this law.
Although it is a common practice among the citizens of the country to quote an amount on paper that is lesser than the actual amount for which it was sold, there are several provisions that are inherent in the legal system that provide for exemptions from this type of tax. They are entirely legal and within the ambit of the legislation. In order to understand these provisions it is necessary to be familiar with a few terms associated with Capital Gains. One of them is Short-Term Capital Gains. A profit from the sale of a property is taxed under Short-Term Capital Gains when the resale of the property has been done in less than 3 years from the date of the original purchase of the property.
Long-Term Capital Gains is used when the resale occurs after more than 3 years after the property was originally purchased. The most perceptible difference between the two is the fact that the long-term gain will be taxed at a lower rate than the short-term gain for obvious reasons. Another important drawback with the short-term gain is the fact that the profit from the resale of the property will be considered as income for the financial year under consideration and will be taxed along with the income in the same tax bracket. In effect it greatly enhances the amount of tax that you have to pay for that year.
Having understood the basic methods that are used, it is now important to understand the exemptions that are provided by the income tax law to this. The capital gains tax can be avoided if the profit from the sale of your property is invested in another property within a specific period of time. In this case the minimum time allowed is 2 years if another property is bought or it is three years in case a new property is constructed right from scratch. The above provisions can only be got if the new property is your second home besides your current residence. If you own more than one house, then they will not come into effect.
The other important method of taxation avoidance is to invest in capital gains bonds. They have a maturity period of three years. The total amount that can be invested in them in Rs. 50 lakhs, in case your property is more than that amount, then a part of the invested amount could be considered for exemption. The other recently introduced method is the Capital Gain Account Scheme (CGAS). This scheme comes into effect if the purchase of the property has been done before the filing of IT returns. This is scheme where money from the sale of the first property can be deposited and can be withdrawn periodically in order to purchase a new one. One of the provisions in this account is one which allows you to use this in much the same way as a savings account where the transactions are almost similar to the latter. The other account is like a fixed deposit whose value can be withdrawn after the date of maturity. But it should be kept in mind that the amount is in these accounts can only be used for the purchase or construction of the new property and not for any other purpose. These are the most common ways to get exempted from the capital gains tax under the provisions of the Income Tax Act of India.
Although it is a common practice among the citizens of the country to quote an amount on paper that is lesser than the actual amount for which it was sold, there are several provisions that are inherent in the legal system that provide for exemptions from this type of tax. They are entirely legal and within the ambit of the legislation. In order to understand these provisions it is necessary to be familiar with a few terms associated with Capital Gains. One of them is Short-Term Capital Gains. A profit from the sale of a property is taxed under Short-Term Capital Gains when the resale of the property has been done in less than 3 years from the date of the original purchase of the property.
Long-Term Capital Gains is used when the resale occurs after more than 3 years after the property was originally purchased. The most perceptible difference between the two is the fact that the long-term gain will be taxed at a lower rate than the short-term gain for obvious reasons. Another important drawback with the short-term gain is the fact that the profit from the resale of the property will be considered as income for the financial year under consideration and will be taxed along with the income in the same tax bracket. In effect it greatly enhances the amount of tax that you have to pay for that year.
Having understood the basic methods that are used, it is now important to understand the exemptions that are provided by the income tax law to this. The capital gains tax can be avoided if the profit from the sale of your property is invested in another property within a specific period of time. In this case the minimum time allowed is 2 years if another property is bought or it is three years in case a new property is constructed right from scratch. The above provisions can only be got if the new property is your second home besides your current residence. If you own more than one house, then they will not come into effect.
The other important method of taxation avoidance is to invest in capital gains bonds. They have a maturity period of three years. The total amount that can be invested in them in Rs. 50 lakhs, in case your property is more than that amount, then a part of the invested amount could be considered for exemption. The other recently introduced method is the Capital Gain Account Scheme (CGAS). This scheme comes into effect if the purchase of the property has been done before the filing of IT returns. This is scheme where money from the sale of the first property can be deposited and can be withdrawn periodically in order to purchase a new one. One of the provisions in this account is one which allows you to use this in much the same way as a savings account where the transactions are almost similar to the latter. The other account is like a fixed deposit whose value can be withdrawn after the date of maturity. But it should be kept in mind that the amount is in these accounts can only be used for the purchase or construction of the new property and not for any other purpose. These are the most common ways to get exempted from the capital gains tax under the provisions of the Income Tax Act of India.