I bought a property in Delhi in April 2008 for Rs25 lakh. Subsequently, I invested Rs5 lakh on improvements and interior decoration. My total investment in the house thus comes to Rs30 lakh. I have now moved to Mumbai after taking up a new job and wish to buy a flat here. Should I wait till April 2011 to avail the benefit of long-term capital gains tax?
- Mayank Abrol
Yes, it is advisable to sell your flat after holding it for three years in order to reduce your tax liability on capital gains made on its sale. When you sell it after three years, your gain will be called long-term capital gain. This will be taxable at a concessional rate of 20 per cent. On the other hand, short-term gains are taxed at the marginal tax rate applicable to an individual.
Moreover, long-term gain is calculated by reducing the indexed cost of acquisition and improvement from the selling price of the house.
You can avoid paying any tax altogether by investing the amount earned from selling this property into acquiring a new house, as you plan to do. This must be done within two years of sale of the first property. A property purchased within one year before the date of transfer of the sold property is also eligible for deduction.
The exemption is also available if you construct a new residential property within three years from the date of transfer.