Income Tax News: A sizable portion of the populace makes investments in stocks, mutual funds, gold, and real estate. The goal of saving and investing for people is to make money. Since we are now generating money, income tax is also computed. Regardless of the source of the income, income tax is due. Mutual funds and the stock market are not an exception either. Yes, there are several actions that can help you save money on taxes.
Tax Savings Through Residential Property Sale
Your home can help you save money on taxes, according to income tax legislation. Section 54 of the Income Tax Law exempts you from paying taxes if you utilise the proceeds from the sale of a residential property to purchase a new home. Simultaneously, Section 54F allows for a tax exemption, aside from residential property, when purchasing a new home with proceeds from the sale of any other type of property, including shares, mutual funds, gold, land, and commercial property.
Section 54F does, however, have certain requirements for claiming tax exemption. The first requirement is that the proceeds from the sale of real estate must be long-term capital gains (LTCG). Second requirement: The full proceeds from the sale, not just the profit, must be used to buy the residence in order to qualify for tax exemption.
Understanding Holding Period Importance
The holding period, or the length of time an asset was held before being sold, determines whether the profit realised from selling it is a long-term capital gain or not. For every property, there are distinct LTCG criteria. A share or equity mutual fund, for instance, is regarded as a long-term capital asset and the profit from its sale is regarded as a long-term capital gain if it is sold after a year of acquisition.
Tax-Saving Opportunities for Long-Term Holdings
This implies that you have tax-saving opportunities if you sell shares or equity mutual funds that you have held for a minimum of a year. Purchasing a new home can result in tax savings under Section 54F. You simply need to remember that you will need to use the complete amount of money—not just the profit—in order to purchase or construct a new home.
Timeline for Home Purchase
A new home must be bought and paid for within two years of the date the previous asset was transferred, such as when a mutual fund unit was sold, in order to qualify for tax exemption. If building is involved, the house should be finished in three years.
You are eligible for the reduction if you purchase a new home even a year before selling the previous asset. If you sell the residence for which you have obtained Section 54F exemption before three years have passed since you bought or built it, the exemption will expire and you will be required to pay tax.
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