Holding period of a house and its impact on income tax benefits

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Holding period of a house and its impact on income tax benefits
Hiranandani Communities | 15 April,2018

Income Tax Benefits

You just bought a property for investment purposes. When selling a property, holding period becomes vital in deciding the taxation benefit on the long-term capital gain.

A holding period of 24 months is important for a person to be able to claim tax benefits linked with long-term capital gains. The long-term capital gains give a property seller the advantages of indexation, concession rate of 20% and a way to save tax by investing in other residential house or capital gains bonds.

The short-term capital gains are applicable if the holding period is less than three years. These gains are added to the income of the individual and then taxed at the applicable rate. This means that you end up paying the highest marginal tax rate at 30% plus cess. Most people end up paying this rate of tax on their short-term capital gains. Meanwhile, long-term capital gains are taxed at 20% plus cess with a benefit of indexation, which reduces the overall tax burden.

The individual must hold the property for a minimum period of three years to make sure that the gains from the transaction qualify as the long-term capital gains and the lower rate applies. 

You must keep in mind that the tax benefits depend on the holding period and you should match the advantages with the holding period to make sure no higher tax liability arises in the future. 

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