If property is sold within 24 months, one has to pay a short term capital gains tax (STCG) on the gains as per an individual's income-tax slab.
After 24 months, one has to pay an LTCG tax, which is charged at 20 per cent with indexation benefits. Section 54 gives an exemption if there is sale of a property and then another one is bought.
This exemption under section 54 is available when the capital gains from property sale are reinvested into buying or constructing maximum two houses.
However, the capital gains on the sale of house property must not exceed Rs 2 crore in order to claim exemption for reinvesting in two properties. This benefit can be claimed only once in the lifetime.
The exemption will be reversed if this new property is sold within three years of purchase and capital gains from sale of the new property will be taxed as short-term capital gains. The new properties must be purchased either one year before the sale or two years after the sale of the property. Alternatively, the new residential properties must be constructed within three years of sale of the property.
In addition, the government is likely to change the applicability of dividend distribution tax (DDT) by shifting the tax liability from dividend issuer or the company to the receiver.
Currently, dividend distribution tax is levied at an effective rate of 20.56 per cent on the company declaring dividends. This is over and above the corporate tax. Apart from this, resident non-corporate taxpayers need to pay 10 per cent tax on dividends in excess of Rs 10 lakh a year. The DDT was introduced for more efficient collection of dividend tax from the companies rather than shareholders.
LTCG on equity
In a move that will fire up the stock markets, the government is likely to extend the timeline of long term capital gains (LTCG) on shares from the current 12 months to 24 months.
Currently, LTCG of 20 per cent is paid by domestic investors if they hold equity for 12 months, and 10 per cent is charged to non-residents if they hold equity for 12 months.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.