Whenever any person plans to sale any Capital Asset such as Plot of Land or Building or any Jewelry or even a Residential unit than that person will end up getting only 80 percent amount in his pocket as 20 percent goes to government of India and this happens only when Gains earned are Long term. So what should an Individual do, so that the whole or part of the 20 percent can be saved? The answer to this part will be provided in this article in detail but before that let’s learn that whether asset sold already or planning to sold will be a Long term or Short term, as If the Gains are long term then legal Tax planning scope is much wider in comparison with Short term Gain.

Here is Asset Holding Period Chart:

Now that it is clear that what it the requirements to qualify as a Long term Capital Gains to avail the deductions which are available under the Income Tax Act, 1961. So let’s discuss some tips and knowledge with the help of Examples to save the tax while selling the above mentioned assets in the Asset Holding Period Chart. Here are few:

1. Deduction Available Under Section 54 for Selling Residential Property: If you are considering Selling house property then you must have knowledge of deduction available under section 54 of Income Tax Act which states that an Individual or HUF can avail the tax exemption for the whole or part of Long Term Capital Gain earned on selling of Residential property by Purchasing or Constructing a Residential property within 1 year before selling or 3 years after selling the residential Property (In case of Purchase of Property then 3 years period will be substituted with 2 years period).

If Construction to be started after Selling or Purchased of Residential Property is not to be purchased in the same year in which the sale happen, then there is a scheme called CGAS, in which amount equal to Long term Capital Gains can be Invested and When Property will be purchased then Amount will be withdrawn and exemption is still unaffected.

2. Selling Any Asset and Claiming Deduction Under section 54EC: This Deduction is an all-rounder deduction which is available to everybody and on any asset provided the Gains earned are Long term Capital Gain and the Investment Made in the prescribed investments is within 6 months from the sale of the capital asset. Maximum Deduction available under this Section is 50 Lakhs.

Prescribed Investments: Capital Gain Bonds of NHAI & REC.

E.g. – If any person sold any asset which is mentioned in the Asset Holding period chart and earn Long term Capital Gains then that person can get an exemption of Rs. 50 Lakhs from the Long Term Capital Gains if by investing the amount of Capital Gains in the Capital Gain Bonds of NHAI & REC.

3. Exemption under Section 54F: This Deduction will be available if Asset sold is any asset mentioned in the Asset Holding Period Chart and investing the amount in the Purchase or Construction of Residential Property. Investment in Purchasing or Construction to be done within 1 year before or 3 years after selling the property (2 years in case the Residential Property is Purchased).

If Construction to be started after Selling or Purchased of Residential Property is not to be purchased in the same year in which the sale happen, then there is a scheme called CGAS, in which amount equal to Long term Capital Gains can be Invested and When Property will be purchased then Amount will be withdrawn and exemption is still unaffected.

4. Taking Lower TDS Rate Certificate Under section 197: If any person is selling an Immovable property of value being more than Rs 50 Lakhs, then the amount receivable by that person will be subject to TDS @ 1%. i.e. If Amount Receivable will be 1,00,00,000/- then only 99,00,000/- will be receivable and 1,00,000/- being the amount of TDS will be received as refund after filing the return of Income provided that person is not Liable to Pay Any tax.

This is not really a Tax saving Tip, but a way to not let your funds be trapped with the income tax department for a period of 6-8 months. As amount received earlier is better as there is opportunity cost for every amount. So if TDS Certificate can is taken by individual then TDS will be not deducted or deducted with lower rate, and amount will not be blocked up.

As Taking Lower TDS Certificate is not so easier, Individual needs to take help of a chartered accountant in this case.