Downsizing your home can be a smart financial move for senior citizens looking to boost their retirement savings. However, navigating the tax implications can be challenging. Akhil Chandna, partner at Grant Thornton Bharat LLP, emphasizes the importance of tax planning when considering downsizing. Here are some tax recommendations for elderly people selling their properties:

Reverse Mortgage: Consider a Reverse Mortgage Loan, which allows senior citizens to generate income by taking a loan against their property. This option is suitable for retirees who don’t plan to purchase another house. With a reverse mortgage, the bank makes payments to the borrower without expecting loan repayment during their lifetime.

Senior Citizen Savings Scheme (SCSS): Invest the proceeds from the home sale in the SCSS, a popular fixed-income investment option for individuals over 60. This scheme ensures a steady flow of income after retirement and offers higher interest rates compared to other fixed-income products. Moreover, it provides tax benefits under section 80C.

Purchase Of A Smaller House: If you intend to sell your house and buy a smaller one, be aware that the Income Tax Act exempts capital gains if the funds are used to purchase or construct a residential property. “However, if the entire sale amount is not invested, there may be some capital gains. To save on taxes, consider investing in capital gain bonds,” says Chandna.

Atul Monga, CEO and co-founder of Basic Home Loan advises senior citizens to be mindful of tax considerations when downsizing. Here are some additional tips:

Capital Gains Tax: If the property has been held for more than two years, it qualifies for long-term capital gains tax. “Take advantage of indexation benefits to reduce your tax liability. However, if the property was held for less than two years, it will be considered a short-term capital asset, and the gains will be taxed at a higher rate,” says Monga.

Exemption Under Section 54: Senior citizens can claim an exemption under Section 54 of the Income Tax Act if they reinvest the sale proceeds in another residential property within the specified time frame. This exemption is applicable to long-term capital gains.

Hence downsizing can be a strategic move for senior citizens to bolster their retirement savings. By considering tax implications and exploring options such as reverse mortgages, SCSS, and capital gain bonds, senior citizens can make the most of their property sales while minimizing their tax burden. Seeking guidance from a financial advisor or tax professional is recommended to ensure compliance with tax laws and optimize the financial benefits of downsizing.