Never change house before 3 years

Key Highlights:
• Selling house before 3 years will attract short term capital gain. Short term capital gain must be avoided on house property.
• Selling house before 5 years will not attract short term capital gain, however deduction claimed u/s 80C for principal repayment in earlier years will be withdrawn and you will have to pay tax as per current income tax slabs.
• It is recommended to hold house for at least 5 years after purchasing in order to avoid unnecessary tax exposure.



Detailed Article:
The cost of selling a house is high. If you sell a property before three years, sale will attract short term capital gains tax chargeable at the rate of 30%. In addition, you will have to pay stamp duty (6-8%), and brokerage (1-2%) on purchase of a new house. Therefore, a house should be purchased and held on to for at least 3-5 years.

Also Read : Why not to buy a second house

Liquidity is another factor to consider before you decide to change your house. It can take time to sell a house at your desired price. Even if you want to change your house, wait for at least three years so that your profit becomes long-term capital gain. Because, if the gain is long-term capital gain, you can save tax by investing it in another house. Short term capital gain must be avoided on house property. If you have transferred/sold any land/building for an amount lesser than the value adopted by state government stamp valuation authority, then the value adopted by the authority will be considered as the sale value for the purpose of computing income tax.

Selling your house even before 5 years is not tax efficient! If you sell the house property before 5 years, then the deduction claimed under section 80 C for principal repayment in earlier years will be withdrawn. This amount will be added to your income and taxed as per your income tax slabs.


About the Author: Manoj Harchandani is a certified TRP (Tax Return Preparer), authorized by Income Tax Department, Government of India. He is a tax planner and investment advisor. If you need ITR filing assistance, tax advice, tax saving tips, short term/ long term investment advice, please write him at manojh.trp@gmail.com

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