Have you sold a residential property this year? Don’t let the taxman take the big cut!

If you have sold a residential property recently and made long-term capital gains, you must know that with smart planning, you can significantly reduce your capital gain taxes.

Here are a few ways to help you save capital gains tax on the sale of property.

1. Section 54: Reinvest Capital Gains Into A Residential Property

You qualify for an exemption on the reinvested amount when you use the proceeds from selling a residential property to purchase another residential property.

However, you can claim the exemption only if the following conditions are met:

• The purchase of a new house within one year before or two years after asset sale or construction completion within three years qualifies for exemption.

• The exemption amount equals the minimum value between the long-term capital gain (LTCG) and your investment expenses.

• One lifetime opportunity exists for investing in two residential properties when the LTCG does not exceed Rs 2 crore.

2. Section 54F Exemption On Sale of Long-Term Capital Assets Other Than Residential Property

Sold a plot, commercial real estate, shares, or bonds? “Under Section 54F, you can claim exemption if you reinvest net sale proceeds into a residential property in India,” says Abhishek Soni, co-founder, Tax2Win.

• However, you must reinvest within 1 year before or 2 years after the date of sale or if the construction is completed within 3 years.

• You must own not more than one residential property other than the new one at the time of sale.

• Exemption applies proportionally if you reinvest only part of the net consideration.

• Maximum deduction is capped at Rs 10 crore.
  

3. Section 54EC: Invest In Capital Gain Bonds

After selling land or a building property, you can use your sale proceeds to purchase capital gain bonds. You must use the sale proceeds to buy capital gain bonds within six months starting from the sale date to receive tax exemption benefits under Section 54EC.

• Amount should be invested in specified bonds (e.g., NHAI, REC, IRFC) within six months of sale.

• Bonds must be held for five years

• The maximum exemption available under 54EC is Rs 50 lakh.

• This helps defer or partially eliminate LTCG tax while your real estate plans fall into place.

4. Use The Capital Gains Account Scheme (CGAS)

If you can’t reinvest before the ITR filing deadline (extended to September 15 for FY 2024‑25), you can deposit the gains in the Capital Gains Account Scheme and still claim exemption. You can use this amount later to purchase a new residential property.

5. Tax Loss Harvesting

You can offset your long-term capital gains by selling your short-term and long-term capital assets which have resulted in losses. Your total capital gains decrease and this will lower your tax responsibility.

6. Co-Ownership of Property

“If you jointly own a piece of property with someone else, you can split the total gains among both owners, and each one can claim the benefit of the exemption limit. This means that each co-owner can claim the benefit of exemption under section 54 or section 54F,” informs Soni.

Careful planning and timely action, thus, can go a long way in reducing your tax burden. Stay informed, keep records handy, and make the most of the exemptions available.