While everyone likes investing their hard earned money, most of us have a hard time computing and paying taxes on the gains. It gets harder still, if you are told that the returns are mostly taxable. With this article, we plan to share insights with you that will help you save taxes on returns made from investments and sale of property. 

Firstly, let us delve into the world of general investments and the applicable taxes. It is pertinent to note that long term capital gains on equity funds are exempted from tax in case the investor holds them for over twelve months. On the other hand, short term gains on equity funds are taxed at a rate of 15%, irrespective of the investor’s tax bracket. Furthermore, on all investments other than equity based ones, short term gains are taxed at the investor’s applicable slab rate. For the purposes of determining, short term funds are defined as a investments with a holding period of less than three years. Gains from long term investments, that is investments with a holding period of more than three years is taxed at 20%, however, indexation benefit is applicable here. We have captured the different ways to minimise your tax as follows: 

1. Setting off: In case of losses, an investor can set it off against the capital gains made. Further, if the capital gains from a year are not enough to fully cover the losses, the unabsorbed loss can be carried forward to the next year. It is to be noted that such carrying forward can be done for eight years. Additionally, one can also set off the long term and short term capital gains against other taxes such as property, gold or mutual funds. 
2. Reducing capital gains: The income tax regime in India allows investors to reduce their long term and short term capital gains from equity to the extend that the investor’s income falls short of the basic limit of exemption. However, it is pertinent to note that this rule is only applicable if the investor is a resident individual or a HUF (Hindu-Undivided Family). 

Let us now dive deep into the world of tax from sale of land and the ways to minimise the tax liabilities in such a case. However, before getting into the details, let us understand the different types of real estate taxes:

1. Property Tax: This type of tax is levied by the local governments and are based on the assessed value of the property, they are used to fund municipal services in the area, like schools, roads, etc. 
2. Capital Gains Tax: This is applicable when one sells a property for profit. The tax is calculated based on the difference between the property’s purchase and selling price. 

Read more: How is Capital Gain Tax Calculated

1. Rental Income Tax: If one earns rental income through a real estate investment, the investor is liable to pay tax on such income. 
2. Transfer Tax: This type of tax is levied in situations involving transfer of properties, that is, change of ownership. 

Read more: 5 Common Income Tax Deductions

We will now delve into the measures that one can adopt to minimise their tax liability from profits earned from sale of property: 

1. Section 54F of the Income Tax, Act: It is to be noted that while this provision is only applicable on long term capital assets, an investor can use the same to claim an exemption from paying capital gains. However, the applicability of this provision is contingent upon the following conditions:
   a. You are using the sales amount to buy a property;
   b. You must be an individual/HUF, since the exemption does not apply to companies;
   c. The new property must be located in India;
   d. You must have purchased the house within 1 year before the date of sale or within two years post such sale;
   e. You must construct one house within 3 years after the date of sale of land;
   f. You must not sell the house within 3 years of purchase or construction;
   g. On the date of transfer, you can not own more than 1 residential house.
   It is pertinent to mention that in case an investor only invests a part of the proceeds, the exemption with be proportional. 

1. Section 54EC of the Income Tax Act: An investor can save tax on capital gains by investing in bonds issued by the the following entities:
   a. Rural Electrification Corporation Limited;
   b. National Highway Authority of India;
   c. Power Finance Corporation Limited;
   d. Indian Railway Finance Corporation Limited.
   
   In conclusion, while it is tedious to strategise and plan one’s investments/proceeds from sale thereof, it is important to keep in mind the aforementioned measures that could be adopted to save tax liabilities. 
   

We at TaxNodes can help ensure a smooth and hassle-free experience while filing income tax returns.

byAditi Mendiratta

Aditi is a corporate lawyer with a knack for writing that ranges from fictional stories to long-form legal content. Armed with a dual degree in law and mass communication, she aspires to put words to their best use to inform, educate and entertain.

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