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Income Tax Deduction: You also have to buy a new house by selling the old one, how will you get tax exemption...

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Tax is such a trap in which even a small mistake can lead to a loss of lakhs. Many people in the country sell their old house and buy a new one or build a new house at another place. Now everyone knows that by selling an old house you get a higher price, which comes in the form of profit. If you have made a profit then you also have to pay tax on it. But, the Income Tax Act also allows you to save tax, if you sell your old house and build or buy another residential house. However, for this, you will need to keep some deadlines and rules in mind. If you are not aware of this rule and miss it, you may have to pay tax worth lakhs of rupees.

In fact, under Section 54 of the Income Tax Act, there is a provision to give tax exemption on the profit made on selling an old house or buying or building another house. Recently, the Income Tax Appellate Tribunal (ITAT) has said in a decision that while claiming tax exemption under Section 54, the taxpayer should keep in mind when he has purchased or constructed the house. If this income is not within the limits prescribed by the law, then tax exemption will not be given. The thing to note here is that the time for tax exemption will be calculated from the possession of the house and not from its agreement.

What does section 54 say?

Under Section 54 of Income Tax, if you have sold an old house, then the difference between its old price and the current price will be considered as profit as long-term capital gain. If we look closely, LTCG tax should be levied on it, which will be 20 percent of the total amount, and assuming a 4 percent cess on it, it will be 20.8 percent. Long-term is the period when a property is sold after holding it for 24 months or more.

Understand with an example: Suppose you bought a house in 2020 when its value was Rs 40 lakh and sold it in 2024 for Rs 50 lakh. In this way, you kept the property with you for 4 years. Therefore, the profit of Rs 10 lakh made on selling it will be considered as your long-term capital gain and you will have to pay 20.8% LTCG tax on it. But, if you sell this house and buy or build another residential house, then you will be given the benefit of tax exemption under Section 54 and the entire amount of profit will be tax-free.

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