Tax on sale of house

Selling a house is one of the important tax events that you should consider before committing to the sale. All the profits that you make from the sale are taxable.

Following scenarios will help you understand the quantum of the tax implications you have based on when you sell.

Case	Scenario 1: Sales within less than 3 years of purchase	Scenario 2: Sales after more than 3 years but less than 5 years of purchase	Scenario 3: Sale after more than 5 years of purchase
Example	You bought a house for 50 lakhs and sold the house by 2nd year for around 60 lakhs. You made the profit of 10 lakhs	You bought a house for 50 lakhs and sold the house by 4th year for around 70 lakhs. You made the profit of 20 lakhs	You bought a house for 50 lakhs and sold the house by 6th year for around 80 lakhs. You made the profit of 30 lakhs
Tax Treatment	This whole sum of 10 is treated as a short-term capital gain in your hands and gets added to your income for the year of sale (for joint owners it's added to their respective incomes in the ratio of their ownerships). And hence, its taxed as per your tax slabs	This whole sum of 20 lakhs is treated as long term capital gain and taxed at the rate of 20% after indexation. However, note that there is a catch if you are selling in this window of 3-5 years from purchase, the tax benefits which were claimed earlier will have to be reversed. The tax deduction claimed for the principal repayment, stamp duty and registration under Sec 80C are reversed and the amount becomes taxable in the year of sale. Only the deduction of the interest payment under Section 24B is left untouched	This whole sum of 30 lakhs is treated as long term capital gain and taxed at the rate of 20% after indexation. In this case you have no reversal of the tax benefits that you have claimed till date
Ways to avoid Tax	There is no way you can avoid paying tax on that. You can only set-off the gains against the short-term losses from the same year on the sale of other assets.	If you use the entire gain from the transaction to buy another house within two years or construct another house within three years. In case the entire capital gains are not invested, the balance is charged to long-term capital gains tax. Note that the entire tax exemption will still be reversed in this scenario.	It's all same as scenario two except that there is no reversal of tax exemptions claimed by you.

In each case, you can also minimize the profits that is liable for tax by making sure you have calculated your cost of acquisition of the house correctly.

In case you don't want to invest the capital gain proceeds in another house, but still want to save tax then you have the following options

• Claim exemption under Section 54 (EC), and in this case you should be investing for 3 years in bonds of NHAI and RECL within 6 months of sale of house. The max limit to save via this way is 50 lakhs. 
• You may also set-off capital gains against any long term capital losses from the sale of other assets. And these could be from the same financial year, or the ones you have been accumulating from last 8 years.

So, you would have realized now, you should be keeping your house for at-least 5 years before deciding to sell it, if you are looking at it from tax efficiency perspective.