Changes in Capital Gains Tax for properties

By Jessica Thomson

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Capital Gains Tax (CGT) is a tax levied by the government on the disposal of capital assets that have increased in value since you acquired them, including property and shares Incomes such as salary, rent and business income are regular and recurring incomes. These are earned in return for providing a particular service such as skills in case of the salaried, professional service or service in the form of permission to use property. One has to pay short-term or long-term Capital Gains Tax on the profits made on the sale of a house, depending on how long the property was owned before the sale. A house refers to a residential property and does not include commercial property and plots of land. Capital assets are classified as Long Term or Short Term with reference to the period of holding of the assets till it is transferred.
Short-term capital gains tax
If the property is owned by an individual and is sold within months of purchase, short-term Capital Gains Tax is applicable on the profits earned from the sale. There are no tax benefits available as per current income tax regulations to save on short-terms capital gains tax Short-term capital gains are added to the total taxable income of the individual and therefore taxed at the relevant tax slabs. The gain in this case is simply the difference between the cost of purchase and the sale value of the asset. Short-term capital gains are taxed in the same manner as income under other heads.
Long-term capital gains tax
If the property is owned by an individual and is held for a minimum months from date of purchase, long-term capital gains tax of is applicable on the profits earned from the sale. This tax can be avoided by re-investing in another residential property if either of these conditions are satisfied - a fully constructed residential property is purchased within a period of one year before the sale or two years after the sale, or, a residential property on is constructed within a period of three years after the sale The amount deposited here is considered to have been used for the purchase or construction of the new house. If the amount deposited is not used for buying a new house, the amount will be treated as long-term capital gains of the previous year.
Managing a capital gains tax liability can be quite a handful for assesses. The conventional method of dealing with such a liability is to simply invest in capital gains bonds. Assesses have the option of not paying any long-term capital gains tax by investing the profit in capital gains bonds with a stipulated time period.

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