Section I: Income Tax and Your House

• Ques: Hidden cost of changing home before 3 years
• Ans: Key points:
  • The cost of selling a house property is high. If you sell the property before three years, sale will attract short term capital gain chargeable at the rate of 30%.
  • In addition, you will have to pay stamp duty (6-8%), and brokerage (1-2%), on purchase of new house. Therefore, home should be purchased for at least 3-5 years.
  • Liquidity is another factor before you decide to change your house. It can take time to sell the house at desired price.
  • Even if you want to change your house, wait for at least three years so that your profit is long-term capital gain. Moreover, you can save tax by investing this capital gain in another house only if the gain is long-term capital gain. Short term capital gain must be avoided on house property.
  • If you have transferred/sold any land and building for amount less than the value adopted by state government stamp valuation authority, then value adopted by the authority will be considered as the sale value for the purpose of computing income tax.