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If you are selling a house for more than what you paid for it, you are supposed to pay the capital gains tax. But how much capital gains tax are you applicable to? In this blog, you will understand the intricacies of managing your taxation after selling a house. 

Capital gains

When you sell your house for a profit, you're liable to pay capital gains tax. This tax applies to the difference between your selling price and the cost of acquiring the house (including purchase price, renovations, and other associated costs).

Tax exemptions after selling a house

There are some exemptions and relief options that can help reduce or eliminate your capital gains tax burden:

  • Primary Residence Exemption: If you lived in the house for at least two out of the five years before the sale, you can exclude up to Rs. 500,000 (Rs. 1 million for married couples filing jointly) of the capital gain from taxation.
  • Indexation Benefit: This adjusts the cost of your house for inflation, effectively reducing the taxable gain.
  • Investment in New Property: If you reinvest the proceeds from your house sale into another residential property within two years before or one year after the sale, you can defer capital gains tax. However, specific conditions apply, so consult a tax advisor for details.

What is the tax rate after selling a house?

The capital gains tax rate applicable to your sale depends on several factors, including your residential status, the duration you held the property, and your overall income tax slab. It's best to consult a tax advisor to determine your specific rate.

Maintain records

Maintaining proper records is crucial for claiming exemptions and ensuring accurate tax calculations. Keep receipts and documents related to the purchase price, renovations, and any other relevant expenses.

Important considerations

  • Municipal Taxes: Remember to account for any outstanding municipal taxes due before the sale.
  • Brokerage Fees and Other Expenses: These can be deducted from your capital gain when calculating your taxable income.
  • Professional Help: If you have a complex situation, consider seeking professional guidance from a tax advisor or accountant to ensure you're maximising exemptions and minimising your tax liability.

Remember: This blog provides general information and is not a substitute for professional tax advice. Consult a qualified tax advisor for specific guidance tailored to your situation.

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