How to save tax after selling a house

Atin has sold a house for a profit and wants to know how he can save tax. He has three options.

Atin, 53, works as a branch manager with a private bank. He had invested in an under-construction house in 2014. Fortunately, its price skyrocketed, prompting Atin to sell the property for a profit of 35 lakh (post indexation; more on this below). He now wants to know how he can save the capitalgains tax.

Calculating tax on the sale of property

Before we explore the options, let us explain how Atin will be taxed. In his case, the profit is termed as capital gains and any property sold after at least two years falls under long-term capital gains. In the case of long-term capital gains, the cost of purchase of property is adjusted for inflation (this aspect is called indexation) and then taxed at a flat rate of 20 per cent. Thus, Atin will have to pay a tax of ₹7 lakh on his post-indexation profit of 35 lakh.

If a property is sold within two years, the profit (called short-term capital gain) is added to the total income and is taxed as per the applicable slab rate.

Saving the tax