If you are thinking of purchasing flats as part of your real estate investment strategies in Thrissur, you have to weigh all your options, plan well, and also be aware of legal and tax implications. Today we will talk about the LTCG tax, or long-term capital gains tax.
What is Capital Gains Tax?
Any investment is made with a view to making a profit. Some investments may give you quick returns, while others take time. The latter kind of returns are known as long-term returns or long-term capital gains. These come from capital assets like real estate, heavy equipment, vehicles, artwork and other collectables, shares and share-oriented products that you possess for at least 12 months after you purchase them. These returns are taxed; not knowing this is one of the common mistakes while investing in real estate in Thrissur.
The Two Categories of Capital Gains Tax
Short-term Capital Gains Tax
This refers to the profit or income earned out of the sale of capital assets held for a short period. This includes real estate that was held for less than 24 months, and shares and other assets held for less than 12 months.
Long Term Capital Gain (LTCG) Tax
Income earned from the sale of shares and mutual funds that are held for more than 12 months, and real estate, gold, and other assets that are held for more than 24 months, is categorized as long-term capital gains tax. There is an exemption limit of 1.25 lakhs. This means that any profit in excess of 1.25 lakhs will be taxed; the rate of LTCG tax is 20%, and a surcharge and cess are also added as applicable.
Tax Rate for Sale of Property
The short-term gains on the sale of property are taxed at a slab rate. The long-term gains are taxed this way:
- At 20% with indexation (If disposed prior to 23rd July 2024)
- At 12.5% without indexation (If disposed on or after 23rd July 2024)
This means that if you sell your property now, you can choose either of the above options. Please note that it is not applicable for properties bought prior to July 22, 2024.
Long-Term Capital Gain/Loss
If you sell immovable property after July 23, 2024, the capital gains will be calculated similarly to the short-term gains as mentioned above, and the rate of taxation will be 12.5%.
If you have purchased the property before July 23, 2024, you can choose to avail indexation benefit, and pay 20% tax on the profit.
For properties acquired on or after July 23, 2024, there is no indexation benefit, and the rate of tax is 12.5%.
Long-term gains are taxed at 20.8%, inclusive of health and education cess of 4%, with indexation. Indexation is a method of adjusting the asset cost as per the inflation index. What this effectively does is that it raises your cost, and decreases your gains. In this manner, your tax liability is reduced. Under long-term capital assets, an indexation benefit is available. An individual who falls into the 30% IT category gets the benefit of paying the lower tax rate of 20%.
LTCG calculation: Sale Proceeds of Asset – (Indexed Cost of Acquisition + Indexed Cost of Improvement + Transfer Expenses)
From this, the exemptions under sections 54/54F/ 54EC are deducted, and you get the taxable amount of capital gains.
How to Save on LTCG Tax?
There are three ways:
- Invest the entire amount in a new residential property within one year before the sale or two years after the sale of the property; you can also build a new home within three years of the property sale.
- Invest the entire sale proceeds in bonds issued by Rural Electrification Corporation Limited (RECL) and the National Highways Authority of India (NHAI) within six months of the sale of the property, capped at 50 lakhs per fiscal year.
- Invest the amount in a capital gains account scheme; money can be withdrawn from this account to buy real estate and must be used within three years.
Conclusion
If you want to know why real estate investment in Thrissur is the best option, you should be aware of the immense potential the city has in terms of development. Reputed builders in Kerala are gearing up to meet the heavy demand for quality housing in Thrissur.
Varma Homes is one of the leading builders in the city, with RERA-approved projects in the best residential localities of the city. Investing in a Varma Homes apartment is guaranteed to get you excellent returns. Check them out now.
Transform your life with the elegance of Varma Homes, offering luxury apartments in Thrissur. Our properties are designed for those who demand excellence and comfort. Explore our stunning luxury apartments in Thrissur today and see why Varma Homes is the preferred choice for premium living. Don’t settle for less—upgrade to a Varma Home now and start living your best life. Contact us to find out more and claim your space in paradise!
FAQ’s
What is Long-Term Capital Gains Tax in Real Estate?
Long-term capital gains tax (LTCG) applies to profits from the sale of real estate that has been held for more than 24 months. The rate for LTCG is typically 20% with indexation benefits, which adjust the purchase cost based on inflation, thus potentially lowering taxable gains.
How can I save on LTCG Tax when selling property in Thrissur?
To save on LTCG tax, you can:
- Reinvest the gains into another residential property one year before or within two years after the sale.
- Invest the proceeds in specific bonds like those from the Rural Electrification Corporation Limited or the National Highways Authority of India within six months after the sale, subject to a cap of 50 lakhs per fiscal year.
- Place the sale proceeds into a Capital Gains Account Scheme, where funds must be used within three years to purchase or construct a property.
What is the process for calculating LTCG on real estate in Thrissur?
To calculate the long-term capital gains (LTCG) on real estate, subtract the Indexed Cost of Acquisition (purchase price adjusted for inflation) and Indexed Cost of Improvement (cost of any improvements made, also adjusted for inflation) along with any expenses incurred during the transfer, from the Sale Proceeds of the Asset. From this amount, you can then deduct any exemptions you qualify for under sections 54, 54F, or 54EC to find the taxable amount of the capital gains.
Leave a Reply