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Income Tax: How much tax will have to be paid on selling an old house and buying a new one, know the rules of income tax...

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Many people like to invest in residential property i.e. houses. They buy a small house for the first time and later sell it and shift to a bigger house. Apart from this, many people do the business of buying and selling property. There are also income tax rules related to buying and selling of houses.

If you are also going to sell your old house and buy a new one, then you should know once how much tax you will have to pay on it.

How much is tax

There are two types of taxes on selling a house. If the house is sold after 2 years or more, then Long Term Capital Gain Tax is levied. In this, a 20 percent tax is levied on the profit made after selling the house.

At the same time, if the house is sold within 2 years, then a short-term capital gain tax is levied. The profit made on selling the house is added to the income. The tax has to be paid according to the tax slab in which the income falls.

How to get tax benefit

     Under Section 54 of the Income Tax Act, tax relief is given on buying a second house from the income earned by selling the house. This relief is available in long-term capital gains. The objective of the Income Tax Act is to help the taxpayer find the right home for himself instead of earning money by selling his house.

     The tax benefit is available whenever the capital gain is to be used to buy or construct a residential property. If land is purchased then no tax benefit is available on it.

     To avail of the tax benefit, the seller will have to buy a new house within 2 years of selling the house. If you want to build a house then the house will have to be built within 3 years.

     At the same time, tax benefits can be availed even if a new house has been purchased a year before selling the house.

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