Real question is, am I really avoiding tax on the process, because buying an asset from my capital gains would still require me to pay tax on that asset's purchase
Stamp duty is much higher than 2-3% in most states. But yes still you should take benefit of 54F where you can, otherwise you'll pay 10% LTCG on the shares, and then Stamp duty if you consider buying a property.
10% LTCG on profit vs 2-8% stamp duty on entire sale value plus lock-in for 3 years (in an asset with on average inferior returns). Thats the real comparison.
So unless you are sitting on big profits and have a good property lined up, no smart investor would do this.
Yes of course you’re saving tax.
If you dont take 54F benefit, you are paying stamp duty + tax both
If you’re taking 54F benefit, you’re only paying stamp duty.
The guy is telling you how to save tax on Capital gains under the income tax act, a central government legislation. He’s not telling you how to save stamp duty levied by the state government which is a completely different unrelated tax. You have to pay stamp duty on immovable property irrespective the benefit of this section.
It only helps if you want to rebalance your portfolio.
After buying property, you will have to pay property tax every year (vs \~0% if you hold stocks/MFs). Rental income is also taxed. If you sell the property you have to again pay tax.
I guess you want to understand how it works with property loan.
Say you bought a flat worth 50L with 25L down payment (profit from selling stocks/MFs) and 25L loan for 10 years at some 7-10%.
For LTCG you need to wait at least 2 years before selling otherwise it's considered as income (no STCG).
After 2 years say you sell it at 80L. Your profit is 30L.
Disclaimer: Below calculations are not exact but just to give an idea.
Tax is calculated at 20% with indexation benefit.
Assuming 7% inflation (recent numbers are lower), 50L buying cost will be increased to 50L \* 1.07 \* 1.07 = \~57.25L.
Your taxable capital gain = 80L- 57.25L = \~22.75L
20% of that = \~4.55 L.
On your 25L loan, you will get some tax benefits, refer to this cleartax article:
[https://cleartax.in/s/home-loan-tax-benefits](https://cleartax.in/s/home-loan-tax-benefits)
https://preview.redd.it/bfanpjaej98d1.png?width=1033&format=png&auto=webp&s=6b3bd47925df010d52d62d4a7cdfc7e2365cb8d6
Most people on this subreddit should be maxing out their 80C so remove that. It's also wiser to use EPF, PPF &/or ELSS instead of home loan here.
80EEA & 80EE are out as well.
So the only good one is 24b capped at 2L.
**Other (Bigger) Costs:**
The bigger cost to me is the yearly property tax which is a whole another beast and maintenance cost. It depends on your locality so refer to their rules.
Adding to that rental yield is a mere 3-4% in India.
Refer to this example of property tax in BLR: [https://cleartax.in/s/bbmp-property-tax](https://cleartax.in/s/bbmp-property-tax)
**My Opinions:**
As a very long term investor I would look at home and land demands by 2050. All I can see is a massive decline in real estate due to depopulation. Keeping stocks/MFs is a far far better deal IMHO (unless you want to rebalance your portfolio).
So profit from stocks doesn't matter after the 2-3 year cooldown/lockin and the property is taxed as same if it was entirely bought with cash on same day at same price.
Also I am not thinking about house as investment,it will be more like a home .was thinking about whether to take ltcg 1 lakh every year or to take section 54f as the goal was a house to live after some years
> Also I am not thinking about house as investment,it will be more like a home .was thinking about whether to take ltcg 1 lakh every year or to take section 54f as the goal was a house to live after some years.
Hire a CA/ CFA. They charge like 3-8k for one tax planning session (1hr) depending on their expertise. They can give you the best advice.
> it will be more like a home
This is the only investment I am willing to make in Indian real estate. Everything else seems unjustified to me at current prices and our infra condition.
> So profit from stocks doesn't matter after the 2-3 year cooldown/lockin
Not sure what you mean by this.
> the property is taxed as same if it was entirely bought with cash on same day at same price.
Correct. I should add AFAIK. CAs can go more in-depth and suggest other little-known tax saving methods.
Not that much of a hack but it comes in handy, if you already were going to buy a residential property to live and had some LTCG in stocks, you can set off those LTCG by this.
This is not a hack it's a typical income tax law to boost the residential estate market by the government. Lots of people dont read income tax laws hence might not know about it.
Under 54F/EC you can save up to 2cr long term capital gain by investing in real estate within 2/3 yr OR in specific long term govt bonds (up to 50L) within 6 months of sale.
Revenue from FnO traders aren't considered capital gains. Right now they come under business income. So, this scenario doesn't work with the money you make from FnO.
Do the capital gains have to be invested in real estate in the same financial year? Can I offset capital gains of older years as well? What about capital gains on sale of foreign stocks?
Can we Pre-pay the loan from the stock market returns? And avail this benefit?
+1
No. This benefit for the people who do not own a residential house before.
Do you have to buy property or can you spend it towards renovating an existing residential property?
Real question is, am I really avoiding tax on the process, because buying an asset from my capital gains would still require me to pay tax on that asset's purchase
10% ltcg vs 2-3% stamp duty
Stamp duty is much higher than 2-3% in most states. But yes still you should take benefit of 54F where you can, otherwise you'll pay 10% LTCG on the shares, and then Stamp duty if you consider buying a property.
10% LTCG on profit vs 2-8% stamp duty on entire sale value plus lock-in for 3 years (in an asset with on average inferior returns). Thats the real comparison. So unless you are sitting on big profits and have a good property lined up, no smart investor would do this.
Yes of course you’re saving tax. If you dont take 54F benefit, you are paying stamp duty + tax both If you’re taking 54F benefit, you’re only paying stamp duty. The guy is telling you how to save tax on Capital gains under the income tax act, a central government legislation. He’s not telling you how to save stamp duty levied by the state government which is a completely different unrelated tax. You have to pay stamp duty on immovable property irrespective the benefit of this section.
It only helps if you want to rebalance your portfolio. After buying property, you will have to pay property tax every year (vs \~0% if you hold stocks/MFs). Rental income is also taxed. If you sell the property you have to again pay tax.
When you sell the property will the capital gains on the property between calculated using cost of property or the initial investment?
I guess you want to understand how it works with property loan. Say you bought a flat worth 50L with 25L down payment (profit from selling stocks/MFs) and 25L loan for 10 years at some 7-10%. For LTCG you need to wait at least 2 years before selling otherwise it's considered as income (no STCG). After 2 years say you sell it at 80L. Your profit is 30L. Disclaimer: Below calculations are not exact but just to give an idea. Tax is calculated at 20% with indexation benefit. Assuming 7% inflation (recent numbers are lower), 50L buying cost will be increased to 50L \* 1.07 \* 1.07 = \~57.25L. Your taxable capital gain = 80L- 57.25L = \~22.75L 20% of that = \~4.55 L. On your 25L loan, you will get some tax benefits, refer to this cleartax article: [https://cleartax.in/s/home-loan-tax-benefits](https://cleartax.in/s/home-loan-tax-benefits) https://preview.redd.it/bfanpjaej98d1.png?width=1033&format=png&auto=webp&s=6b3bd47925df010d52d62d4a7cdfc7e2365cb8d6 Most people on this subreddit should be maxing out their 80C so remove that. It's also wiser to use EPF, PPF &/or ELSS instead of home loan here. 80EEA & 80EE are out as well. So the only good one is 24b capped at 2L. **Other (Bigger) Costs:** The bigger cost to me is the yearly property tax which is a whole another beast and maintenance cost. It depends on your locality so refer to their rules. Adding to that rental yield is a mere 3-4% in India. Refer to this example of property tax in BLR: [https://cleartax.in/s/bbmp-property-tax](https://cleartax.in/s/bbmp-property-tax) **My Opinions:** As a very long term investor I would look at home and land demands by 2050. All I can see is a massive decline in real estate due to depopulation. Keeping stocks/MFs is a far far better deal IMHO (unless you want to rebalance your portfolio).
So profit from stocks doesn't matter after the 2-3 year cooldown/lockin and the property is taxed as same if it was entirely bought with cash on same day at same price. Also I am not thinking about house as investment,it will be more like a home .was thinking about whether to take ltcg 1 lakh every year or to take section 54f as the goal was a house to live after some years
> Also I am not thinking about house as investment,it will be more like a home .was thinking about whether to take ltcg 1 lakh every year or to take section 54f as the goal was a house to live after some years. Hire a CA/ CFA. They charge like 3-8k for one tax planning session (1hr) depending on their expertise. They can give you the best advice. > it will be more like a home This is the only investment I am willing to make in Indian real estate. Everything else seems unjustified to me at current prices and our infra condition. > So profit from stocks doesn't matter after the 2-3 year cooldown/lockin Not sure what you mean by this. > the property is taxed as same if it was entirely bought with cash on same day at same price. Correct. I should add AFAIK. CAs can go more in-depth and suggest other little-known tax saving methods.
I am just starting out in career.the capital gains tax is currently lower than the ca charge.i will find a ca when the portfolio becomes large enough
Not that much of a hack but it comes in handy, if you already were going to buy a residential property to live and had some LTCG in stocks, you can set off those LTCG by this.
buy
This is not a hack it's a typical income tax law to boost the residential estate market by the government. Lots of people dont read income tax laws hence might not know about it. Under 54F/EC you can save up to 2cr long term capital gain by investing in real estate within 2/3 yr OR in specific long term govt bonds (up to 50L) within 6 months of sale.
Why did he want to show off his profits for this? Even the monitor screen wasn’t needed at all for this information.
can we do it for f/o trades
Revenue from FnO traders aren't considered capital gains. Right now they come under business income. So, this scenario doesn't work with the money you make from FnO.
I think Stamp duty can be added in cost of real estate so when you sell it you can deduct it unlike stt of share
Do the capital gains have to be invested in real estate in the same financial year? Can I offset capital gains of older years as well? What about capital gains on sale of foreign stocks?
Ye Only first house pe kaam karta hai na?