A Simple Trick to Avoid Rs 10 Lakh in Capital Gains Tax
Thank you for reading this post, don't forget to subscribe!Here’s a common dilemma: you’ve sold a property and made a significant profit, but you haven’t bought a new house yet. The tax deadline is looming, and you’re facing a hefty capital gains tax bill. Is there any way out?
For Ramesh, a taxpayer who sold his Hyderabad property, the answer was yes. He had a Rs 50 lakh long-term capital gain, which meant a tax liability of Rs 10.40 lakh at the 12.5% rate. With the financial year-end approaching, he thought he had no choice but to pay.
But with some smart advice, his tax bill was reduced to zero.
The Solution: The Capital Gains Account Scheme (CGAS)
Many taxpayers don’t realize that you don’t have to buy the new property before the tax filing deadline to claim your exemption. You just need to show that you’ve set aside the money for that purpose.
That’s where the Capital Gains Account Scheme (CGAS) comes in. It’s a special, government-backed account for those who want to claim a tax exemption under Section 54 or 54F but haven’t yet reinvested their gains.
Here’s how it works:
- Deposit your gains: Before your ITR filing deadline (e.g., September 15, 2025, for property sold this year), deposit the unutilized capital gains into a CGAS account.
- Preserve your exemption: This deposit is treated as a reinvestment, allowing you to claim your full tax exemption.
- Get more time: You now have up to two years to buy a new property or three years to construct one, without the pressure of a looming deadline.
By using this simple hack, Ramesh saved Rs 10.40 lakh and gained the flexibility to find the right property without rushing. It’s a crucial reminder that timely tax planning can save you a fortune.
Understanding Property Tax Rules
For property sellers, the tax rules depend on how long you’ve held the asset.
- Short-Term Capital Gains (STCG): If you sell a property within two years, your profit is added to your income and taxed at your regular slab rates.
- Long-Term Capital Gains (LTCG): If you sell after two years, the tax rate is 12.5% without indexation (for properties acquired and sold after July 23, 2024). For older properties, you can choose between a 20% rate with indexation or the 12.5% rate without, whichever is more beneficial.
Remember, the ITR filing deadline is also the cut-off date to secure your exemptions through the CGAS. Don’t miss it.
