How to save income tax on capital gains from the sale of real estate


I sold my house in my hometown and moved to Bangalore. It was originally a dwelling house. I inherited part of it and paid money to other members to get full ownership of the property. A younger brother’s portion was purchased in 2018 at commercial rates, showing that his 350-square-foot portion was commercial, as he was asking for full cash by check and the rates matched commercial rates. On August 26, 2021, the whole house was sold as residential and commercial, but the appraisals paid by buyers for the entire square footage were calculated much more than the circular rate applicable to residential property and were calculated on the rates. commercial. The house was never rented and no commercial activity was carried out. My problem is this, I am 70 years old and if I invest the entire amount in a residential house, to claim the capital gains exemption in a residential house then what will happen in a medical emergency. Please guide.

For long-term capital gains on the sale of any capital property, you can claim an exemption if you are investing if you are investing to buy a residential home. The amount you need to invest differs depending on whether the asset being sold is a residential house or a non-residential property, including commercial property. To benefit from the exemption of long-term capital gains on the sale of a residential building, you must only invest the amount of the capital gains and this also after having benefited from the indexation. On the other hand, to benefit from a long-term capital gains exemption for a commercial building, you must invest the entire consideration for the sale in a residential house. Thus, if the property sold is residential, the amount of the investment to be made is significantly lower than what must be invested in the case of the sale of a commercial property.

I understand your problem. I think it was not necessary for you to treat the property as commercial for the sole purpose of getting better consideration. There is no restriction under the law to sell your property above the circular rate and you could have sold this property as a residential property at that rate. Since you admittedly treated this property as a commercial property in the deed of sale, you can no longer claim that it is a residential property by the principle of estoppel. As a last resort, you can find out if the same property is listed as residential or commercial property under the gram panchayat or municipal records.

In order to determine whether a property should be treated as commercial or residential, the fact that it has never been used for commercial purposes or that it has never been rented is irrelevant.

Balwant Jain is a tax and investment expert and can be contacted on [email protected] and @jainbalwant on twitter.

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