When you make a gain on sale of house property, you are liable to pay taxes on your gains. If three years pass, between the due date of purchase and sale of the property, then the gains will be classified as long-term gains. And if the time limit of three years has not elapsed, the gains are treated as short-term capital gains. The taxation on long-term capital gains is charged at the rate of 20 percent while on short-term capital gains it is charged at marginal tax rates.

While paying capital gains tax is mandatory, there are some ways in which the tax liabilities can be reduced. They are:

• Calculate the Cost of Property Using Cost Inflation Index

It is one of the best ways to decrease the capital gains tax on property. By calculative the cost of property using cost inflation index you can arrive at the cost of the property in accordance with the rising inflation. For Instance, if the index has doubled from 100 to 200, then you can increase the cost of property from Rs. 10 Lakh to Rs. 20 Lakh. This will show that due to inflation, you are not gaining huge profits on and after the transaction.

• Acquire a New Property or Build One

In order, to purchase or build a new house if you sell your old property then you can claim for tax relief under Section 54 of the Income Tax Act. Under this Section, if a person sells the non-residential property to build or buy a residential one, the tax levied on such transaction can be exempted. However, one thing that must be carefully considered is that you cannot sell the newly acquired property for three years or else you will have to pay heavy taxes as it will not be valid under Section 54.

• Opt for Capital Gains Bonds

People who are not eligible to claim tax benefits under Section 54 can opt for capital gain bonds to get tax relief. It means any amount received after selling the property can be put into these bonds to gain tax deductions. Moreover, you also receive a 6 percent rate of interest on these bonds. To avail these deductions, however, you must deposit the gains into bonds within 180 days of the transaction.