Understanding STCG Tax Rate and Its Impact on Home Loans

When we talk about taxes, one important topic is the Short-Term Capital Gains (STCG) tax rate. Understanding this tax is crucial for anyone making investments, especially if you are considering buying a home or applying for a home loan. Let us break down what STCG tax is, how it affects your finances, and its implications for home loans.

What is STCG tax?

The Union Budget 2024 has introduced significant revisions to the taxation of short-term capital gains on property. Short-term capital gains occur when a property is sold within two years of its purchase. These gains are considered part of the seller’s income and are taxed based on the applicable income tax rates. Short-term capital gains are determined by subtracting the property's purchase price, along with related expenses like brokerage fees and improvement costs, from the sale price.

As per the latest changes, the STCG tax rate on certain “specified” financial assets has been set at 20%, an increase from the previous rate of 15%. This adjustment means that investors must now consider the higher tax liability when planning their financial strategies.

Why is STCG tax important?

The STCG tax rate is important because it can impact your overall financial strategy. For example, if you sell shares quickly and make a profit, you will owe taxes on that gain. This tax can eat into your profits, affecting how much you have available for other investments, like buying a home.

How STCG tax affects home loans

When you decide to buy a home, you may need to sell some investments to gather the necessary funds. If you sell an asset that you have held for less than a year, the profit from that sale will be taxed under the new STCG tax rate of 20%. This means less money in your pocket for a down payment or closing costs.

Let us say you sold some shares for a profit of Rs. 1,00,000. After paying the 20% STCG tax, you will have Rs. 80,000 left. This reduction can be significant when you are trying to save for a home. Thus, understanding this tax can help you make better financial choices.

Additional read: Calculate your tax easily with our income tax calculator

Planning your investments wisely

To minimise the impact of the STCG tax, consider holding onto your investments for longer periods. By doing this, you can potentially qualify for lower long-term capital gains tax rates. This strategy can allow you to have more funds available when applying for a home loan.

Another way to approach this is by investing in tax-saving financial products. For instance, Equity Linked Savings Schemes (ELSS) can offer tax benefits under Section 80C of the Income Tax Act. Not only do these investments grow over time, but they can also be a smart way to save for your home while reducing your taxable income.

Tips for home loan seekers

1. Calculate your gains: Before selling any investments, understand your potential gains and the associated STCG tax rate. Use a financial calculator or consult with a financial advisor.

2. Diversify your investments: Spread your investments across different asset classes. This reduces the risk and can provide you with more options for selling, depending on market conditions.

3. Consider long-term investments: If possible, hold onto your investments longer. This will help you avoid the STCG tax and potentially reduce your overall tax burden.

Financial planning for homeownership

When planning to buy a home, always consider your overall financial health. Your credit score, debt-to-income ratio, and savings play a huge role in your home loan approval. The more you can liabilities, the better positioned you will be for a favourable loan.

Another aspect to think about is the type of home loan you will need. Bajaj Housing Finance Home Loan is a great option for home buyers. With low interest rates and flexible repayment plans, it can help you afford the home of your dreams while taking your tax situation into account.

Here are a few benefits of opting for a home loan from us:

1. High loan amount: Make your homeownership dreams a reality with a loan amount of up to Rs. 15 crore*.

2. Low interest rates: Enjoy affordable EMIs starting at just Rs. 741/lakh*, with interest rates as low as 8.25%* p.a.

3. Fast approval: Get your loan sanctioned in as little as 48 Hours*, or even sooner.

4. No foreclosure charges: With a floating interest rate, you can prepay or close your loan without any extra fees.

5. Hassle-free application: Our convenient document pickup service means you will not have to visit the branch multiple times.

Do not wait any longer—apply for a Bajaj Housing Finance Home Loan today and move closer to owning your dream home.