LTCG on real estate: How to manage tax on profit on house property income

Real estate sector has been a traditional avenue for revenue to the investors. People used to prefer real estate for big gains in small time-frame. However, while making any investment decision into the real estate property, one must know about the Long Term Capital Gain (LTCG) tax and conditions along with relaxations. Being unknown to this tax may land the investor in trouble. Balwant Jain, a Mumbai-based tax and investment expert says that LTCG is applicable on both under construction inventories and ready to home units, however, rules for applying LTCG on these two types of realty properties are different. 

Elaborating upon the LTCG rules on under construction and ready to shift units Balwant Jain said, "In a real estate investor buys an under construction property, then the LTCG tax becomes applicable when he or she decides to sell out the property after three years of holding. While in case of ready to move property, the LTCG tax will be applicable if he or she decides to sell it out after two years of possession."

On how to avoid LTCG while filing Income Tax Return (ITR) Kartik Jhaveri, Director — Wealth Management at Transcent Consultants said, "A real estate investor can keep the money into the capital gain account after selling out his or her property. This period can be up to three years. During this period, one can re-invest this money into another property and avoid LTCG tax. during these three years, the investor would get interest on his or her money as per the interest rate is given by the bank to its saving account holders. However, to maximise one's gain, an investor can buy capital gain bond up to Rs 50 lakh within six months of the property sale."

Explaining other benefits that a real estate investor can avail off Jitendra Solanki, a SEBI registered investment expert said, "While accounting one's LTCG tax on real estate property, one needs to deduct the brokerage being paid during the buy and sale of the property. Apart from that, money that one spends on repair and maintenance of the property would also get deducted. However, for availing these deductions from the LTCG tax net, one needs to have proper bills being raised against his or her name with proper heads being mentioned."