Capital Gains Tax on Sale of Property in India (FY 2024-25 / AY 2025-26)
- Asharam Swain
- Jul 22, 2025
- 25 min read
Understanding the capital gain tax on sale of property is very important for Taxpayers in India. This guide explains the Income Tax implications when you sell a Property. We will explore the types of capital gains, how to calculate them, and the applicable tax rates for the Financial Year (FY) 2024-25 and Assessment Year (AY) 2025-26. This article also covers various exemptions available to save tax and includes the latest updates from Budget 2024. By reading this, you will learn about capital gains tax India, how to calculate property sale tax, and ways to reduce your income tax on property sale. This guide incorporates the latest amendments from Budget 2024 to give you current information. You might also want to check the current income tax slab rates.
Table of Content
Types of Capital Gains on Property: Short-Term (STCG) vs. Long-Term (LTCG)
Capital Gains Tax Rates on Property for FY 2024-25 (AY 2025-26)
Interactive Capital Gains Tax Calculator for Property (India)
How to Save Capital Gains Tax on Sale of Property: Exemptions Explained
Frequently Asked Questions (FAQs) on Capital Gains Tax from Property Sale
What is Capital Gains Tax on Sale of Property?
Capital gains tax on property is a tax you pay on the Profit earned from selling a Property, like a house, land, or building. This Profit is the difference between the selling price and the cost price of the Capital Asset. The Income Tax Act, 1961, governs this tax. It's important to know that selling a property as a Capital Asset is different from the income a real estate dealer earns from selling properties as part of their business. Business income has different tax rules. You can learn more about understanding capital gains or refer to the Income Tax Act, 1961 for detailed legal information.
The capital gains on propertyrefer to the profit an individual makes when they sell a property for more than they bought it for. This gain is considered income and is taxed under the Income Tax Act, 1961. When you make a Sale or Transfer of a Capital Asset like a house or land, and you are not in the business of property dealing, the profit attracts capital gains tax. This ensures that earnings from such significant transactions contribute to the tax revenue.
A Capital Asset, in simple terms, includes assets like land, buildings, and house property. When these assets are sold, any profit is termed as capital gains. The tax is levied in the year the Transfer of the Capital Asset happens. It's not a tax on the entire sale amount, but only on the actual gain or profit.
Types of Capital Gains on Property: Short-Term (STCG) vs. Long-Term (LTCG)
Short term capital gains on property and long term capital gains on property are the two types of gains, and the main STCG LTCG difference lies in the Holding Period of the Immovable Property. The holding period for capital gains on property is crucial because the tax treatment for Short-Term Capital Gain (STCG) and Long-Term Capital Gain (LTCG) differs quite a bit.
For Immovable Property such as a house or land, if you hold it for 24 months or less before selling it, the profit is a Short-Term Capital Gain (STCG). If you hold the Immovable Property for more than 24 months, the profit is a Long-Term Capital Gain (LTCG). This 24-month threshold is a key factor.
The tax rates for STCG are usually based on your income slab, while LTCG has special tax rates, often with benefits like indexation (which we will discuss later). Understanding whether your gain is STCG or LTCG is the first step in figuring out your tax. This distinction significantly impacts how much tax you will pay.
How to Calculate Capital Gains on Sale of Property
To calculate capital gains tax on property, you need to understand a few key terms like Full Value of Consideration, Cost of Acquisition, Cost of Improvement, Expenses on Transfer, and, for long-term gains, the Indexed Cost of Acquisition and Indexed Cost of Improvement using the Cost Inflation Index (CII). The property sale profit calculation method differs for short-term and long-term gains. We'll break down how to calculate both types of gains below.
Calculating Short-Term Capital Gains (STCG) on Property
The STCG calculation formula for property is straightforward. To how to calculate short term capital gain, you subtract the costs from the sale price. The formula is:
STCG = Full Value of Consideration - (Cost of Acquisition + Cost of Improvement + Expenses on Transfer)
Let's understand these terms for STCG:
Full Value of Consideration: This is the total sale price you receive for the property.
Cost of Acquisition: This is the original price you paid for the property, plus any expenses directly related to its purchase like stamp duty and registration charges.
Cost of Improvement: This includes any capital expenses you made to add to or improve the property. Regular maintenance costs don't count here.
Expenses on Transfer: These are costs directly related to the sale, like brokerage or commission paid, legal fees, etc.
It's important to note that for STCG, there is no benefit of indexation. Indexation is a way to adjust the cost for inflation, but it only applies to long-term gains.
Example for STCG Calculation: Suppose Mr. Arun bought a flat for ₹40 lakhs in January 2023. He spent ₹2 lakhs on registration and stamp duty at that time (part of cost of acquisition). In March 2023, he spent ₹3 lakhs on adding a new room (cost of improvement). He sold the flat in October 2024 for ₹55 lakhs. He paid ₹1 lakh as brokerage on the sale (expenses on transfer).
Holding Period: January 2023 to October 2024 is 21 months (less than 24 months), so it's STCG.
Full Value of Consideration: ₹55,00,000
Cost of Acquisition: ₹40,00,000 (purchase price) + ₹2,00,000 (stamp duty/registration) = ₹42,00,000
Cost of Improvement: ₹3,00,000
Expenses on Transfer: ₹1,00,000
STCG = ₹55,00,000 - (₹42,00,000 + ₹3,00,000 + ₹1,00,000) STCG = ₹55,00,000 - ₹46,00,000 STCG = ₹9,00,000
So, Mr. Arun's Short-Term Capital Gain is ₹9 lakhs. This amount will be added to his total income and taxed at his applicable income tax slab rate.
Calculating Long-Term Capital Gains (LTCG) on Property
The LTCG calculation formula involves an extra step called indexation if you choose that option (for properties acquired before July 23, 2024 and sold on or after that date, or for properties sold before that date). To how to calculate long term capital gain with indexation, you adjust the purchase and improvement costs for inflation. The formula is:
LTCG = Full Value of Consideration - (Indexed Cost of Acquisition + Indexed Cost of Improvement + Expenses on Transfer)
Let's understand these terms for LTCG:
Full Value of Consideration: Same as in STCG, this is the total sale price.
Indexed Cost of Acquisition: This is the original Cost of Acquisition adjusted for inflation using the Cost Inflation Index (CII).
Indexed Cost of Improvement: This is the Cost of Improvement adjusted for inflation using the CII.
Expenses on Transfer: Same as in STCG, these are costs directly linked to the sale.
Indexation helps reduce your taxable gain by accounting for the effect of inflation over the holding period.
Example for LTCG Calculation (with Indexation): Suppose Ms. Priya bought a plot of land in May 2010 (FY 2010-11) for ₹10 lakhs. She paid ₹50,000 for registration then. In June 2015 (FY 2015-16), she spent ₹2 lakhs constructing a boundary wall. She sold the land in December 2024 (FY 2024-25) for ₹70 lakhs. She paid ₹70,000 as brokerage. (CII for FY 2010-11 = 167; CII for FY 2015-16 = 254; CII for FY 2024-25 = 363)
Holding Period: May 2010 to December 2024 is more than 24 months, so it's LTCG.
Full Value of Consideration: ₹70,00,000
Cost of Acquisition: ₹10,00,000 + ₹50,000 = ₹10,50,000
Indexed Cost of Acquisition: (Cost of Acquisition CII of Year of Sale) / CII of Year of Purchase = (₹10,50,000 363) / 167 = ₹22,81,886 (approx.)
Cost of Improvement: ₹2,00,000
Indexed Cost of Improvement: (Cost of Improvement CII of Year of Sale) / CII of Year of Improvement = (₹2,00,000 363) / 254 = ₹2,85,827 (approx.)
Expenses on Transfer: ₹70,000
LTCG = ₹70,00,000 - (₹22,81,886 + ₹2,85,827 + ₹70,000) LTCG = ₹70,00,000 - ₹26,37,713 LTCG = ₹43,62,287
So, Ms. Priya's Long-Term Capital Gain is ₹43,62,287. She will be taxed on this amount at the applicable LTCG rate. Depending on acquisition and sale dates, she might have an option for a different tax rate without indexation.
Understanding Key Terms in Calculation
The cost of acquisition property is a crucial element in calculating capital gains. It means the original Purchase Price you paid for the asset. It also includes other direct expenses incurred during the purchase, like Stamp Duty, Registration Charges, legal fees for drafting purchase documents, and any brokerage paid.
The cost of improvement capital gains refers to any capital expenditure you made to make additions or improvements to the property. For instance, constructing an additional floor or a new room would be a cost of improvement. Regular repairs or maintenance expenses are not considered costs of improvement.
Expenses on Transfer property are costs directly related to the sale of the property. These can include Brokerage or commission paid to a real estate agent, Legal Fees for the sale agreement, advertisement expenses for the sale, and other similar expenses. These reduce your overall capital gain.
If a property was acquired before April 1, 2001, the taxpayer has an option for determining the Cost of Acquisition. They can choose either the actual cost of acquisition or the Fair Market Value (FMV) of the property as on April 1, 2001, whichever is higher (but not exceeding the stamp duty value, if applicable). This FMV rule helps provide a fair base cost for very old properties where the original purchase price might be very low and not reflective of its true initial worth in current terms. The Income Tax provisions specify how this FMV can be determined, often through a registered valuer's report.
Here's a quick summary:
Full Value of Consideration: The total Sale Price received or to be received.
Cost of Acquisition:
Original Purchase Price.
Stamp Duty paid.
Registration Charges.
Brokerage paid at purchase.
Legal fees for purchase.
Cost of Improvement:
Capital expenditures for additions or improvements (e.g., new floor, room extension).
Does not include routine maintenance or repair costs.
Expenses on Transfer:
Brokerage or commission on sale.
Legal Fees for sale.
Advertising expenses for sale.
Other direct selling expenses.
What is Indexation and the Cost Inflation Index (CII)?
The indexation benefit on property is a very useful tool for reducing your Long-Term Capital Gains tax. Indexation is the process of adjusting the Cost of Acquisition and Cost of Improvement of an asset to account for Inflation over the period you held the asset. This means the purchase cost is increased to reflect its value in current terms, which in turn lowers the taxable profit. The Cost Inflation Index (CII) is a measure used for this purpose. The Central Board of Direct Taxes (CBDT) notifies the CII for capital gains for every financial year. The base year for CII is 2001-02, with a value of 100.
The formula for calculating the Indexed Cost of Acquisition is: Indexed Cost of Acquisition = Cost of Acquisition * (CII of Year of Sale / CII of Year of Purchase)
Similarly, for Indexed Cost of Improvement: Indexed Cost of Improvement = Cost of Improvement * (CII of Year of Sale / CII of Year of Improvement)
The CII for FY 2024-25 (AY 2025-26) is 363, as notified by the CBDT. Using this cost inflation index table allows taxpayers to get a fair picture of their real gains, not just the nominal profit which doesn't account for rising prices over time. Remember, Budget 2024 has introduced changes where for certain transactions, this indexation benefit might not be available, or an alternative lower tax rate without indexation is offered.
Here is a Cost Inflation Index Table for some recent years:
Financial Year (FY) | Cost Inflation Index (CII) |
2001-02 (Base Year) | 100 |
... | ... |
2019-20 | 289 |
2020-21 | 301 |
2021-22 | 317 |
2022-23 | 331 |
2023-24 | 348 |
2024-25 | 363 |
Capital Gains Tax Rates on Property for FY 2024-25 (AY 2025-26)
The applicable capital gains tax rate India for FY 2024-25 (AY 2025-26) depends on whether the gain is Short-Term Capital Gain (STCG) or Long-Term Capital Gain (LTCG). These Tax Rates also involve a Surcharge (if your income is very high) and a 4% Health and Education Cess on the tax amount. The Budget 2024 has brought significant changes to the LTCG tax rate property, offering new options for taxpayers. The property tax rates 2024-25 for capital gains need careful understanding due to these updates.
Tax Rate on Short-Term Capital Gains (STCG)
The short term capital gain tax rate property is determined by adding the STCG to your total taxable income for the financial year. This total income (including the STCG) is then taxed at the Income Tax Slab Rates applicable to you. So, there isn't a special flat rate for STCG on property; it just gets clubbed with your other income like salary, business profit, etc., and taxed as per the regular slab system. You should check the applicable income tax slab rates for FY 2024-25 to see which bracket your income falls into. The tax on STCG India from property can vary greatly from person to person based on their total income level.
Tax Rate on Long-Term Capital Gains (LTCG)
The LTCG tax rate for property has seen important updates in Budget 2024. The tax on long term capital gain from property now depends on when the property was sold and, in some cases, when it was acquired.
Here's a breakdown of the LTCG new tax rate:
Properties sold on or before July 22, 2024:
These are taxed at 20% with the benefit of Indexation.
Properties sold on or after July 23, 2024:
If the property was acquired before July 23, 2024: The taxpayer has an option to choose the lower of:
20% tax with Indexation Benefit, OR
12.5% tax without Indexation Benefit.
If the property was acquired on or after July 23, 2024: The tax rate is 12.5% without Indexation Benefit.
These capital gains tax budget 2024 changes aim to simplify the tax structure while offering choices. The 20% vs 12.5% LTCG decision for properties acquired before July 23, 2024, and sold after that date will require careful calculation to see which option is more beneficial.
On top of the calculated tax (whether 20% or 12.5%), an applicable Surcharge (if your total income exceeds certain thresholds) and a 4% Health and Education Cess will be levied on the income tax amount. It's crucial to consider these dates and acquisition details to apply the correct tax rate.
LTCG Tax Rate Decision Matrix (Property Sold on or after July 23, 2024)
Acquisition Date of Property | Sale Date of Property | Tax Rate Options | Indexation Benefit |
Before July 23, 2024 | On or after July 23, 2024 | Choose lower of: (a) 20% OR (b) 12.5% | (a) Yes (b) No |
On or after July 23, 2024 | On or after July 23, 2024 | 12.5% | No |
A capital gains tax calculator India can be a handy tool. This property tax calculator or LTCG calculator helps you estimate your potential Tax Liability Estimate from selling a property. By inputting details like Sale Price, Purchase Price, purchase and sale Dates, cost of improvements, and any applicable Exemptions, you can get a rough idea of your tax.
(Calculator Embed Area)
Asset Type: Residential Property, Other Property
Date of Purchase: (DD/MM/YYYY)
Purchase Cost: (INR)
Date of Sale: (DD/MM/YYYY)
Sale Consideration: (INR)
Cost of Improvements (with year of improvement if LTCG): Add multiple
Expenses on Transfer: (INR)
Option to select applicability of Budget 2024 rules: (Auto-determined based on dates is preferable)
Checkbox/dropdown for considering exemptions: (e.g., Section 54, Section 54EC, Section 54F)
Output Fields:
Holding Period
Type of Gain (STCG/LTCG)
Indexed Cost of Acquisition/Improvement (if LTCG and applicable)
Taxable Capital Gain
Estimated Tax (showing options if applicable, e.g., 20% with indexation vs 12.5% without)
Brief note on how selected exemptions might impact the gain.
Using such a tool can simplify the initial understanding of your tax outgo.
How to Save Capital Gains Tax on Sale of Property: Exemptions Explained
You can save capital gains tax on property by using various Tax Exemptions available under the Income Tax Act. These capital gains tax exemptions India allow you to reduce your taxable capital gains if you meet specific conditions, often involving reinvesting the sale proceeds. The most commonly used sections for property sale tax saving are Section 54, Section 54EC, Section 54F, and Section 54B. Sometimes, you might need to use the Capital Gains Account Scheme (CGAS) temporarily.
It's important to know that these exemptions are subject to specific conditions and timelines. Also, Budget 2023 introduced a potential cap of ₹10 crore on the deduction that can be claimed under sections like 54 and 54F for investments made on or after April 1, 2023. This means if your cost of the new asset (for Section 54) or the amount of capital gain (for Section 54F if the new asset's cost is higher) is more than ₹10 crore, the exemption will be limited to ₹10 crore.
Section 54: Exemption on Sale of Residential House Property
The section 54 income tax actprovides an exemption if you sell a long-term residential house and reinvest the capital gains into another residential house. This capital gains exemption section 54 is available to an Individual or a HUF (Hindu Undivided Family). To avail this, you need to buy new house to save capital gains.
Key conditions for Section 54 exemption:
Asset Sold: Must be a Long-Term Residential House (house or flat).
Investment In: One or two new residential houses in India.
You can invest in two new residential houses if the capital gain is less than or equal to ₹2 crore. This option can be exercised only once in a lifetime.
Timelines for New House:
Purchase: Within 1 year before the date of sale or 2 years after the date of sale of the old house.
Construction: Within 3 years after the date of sale of the old house.
Amount of Exemption: The lower of the capital gain amount or the cost of the new residential house. If you invest the entire capital gain, the whole gain is exempt. If you invest only a part, the exemption is proportionate.
Lock-in for New House: You must not sell the new house within 3 years of its purchase or construction. If you do, the previously claimed exemption will be taxed as income in the year of sale of the new house.
Capital Gains Account Scheme (CGAS): If you cannot buy or construct the new house before the due date of filing your Income Tax Return (ITR) for the year the old house was sold, you must deposit the unutilized capital gain amount into an account under the Capital Gains Account Scheme (CGAS) with a specified bank. You can then withdraw this amount to buy or construct the new house within the specified timelines.
₹10 Crore Cap: As per Budget 2023, for investments made in a new residential house on or after April 1, 2023, if the cost of the new house exceeds ₹10 crore, the exemption under Section 54 will be capped at ₹10 crore.
For a more detailed guide on Section 54 exemption, you can refer to specialized articles.
Section 54EC: Exemption on Investment in Specified Bonds
The section 54ec bonds offer a way to get capital gains exemption bonds when you sell a long-term capital asset, specifically land or building or both. This exemption is available to any assessee (Individual, HUF, company, etc.).
Key conditions for Section 54EC exemption:
Asset Sold: Must be a Long-Term Capital Asset, being land or building or both.
Investment In: Specified bonds issued by entities like the National Highways Authority of India (NHAI), Rural Electrification Corporation (REC), Power Finance Corporation (PFC), or Indian Railway Finance Corporation (IRFC). These bonds are redeemable after 5 years.
Maximum Investment: You can invest a maximum of ₹50 lakhs from the capital gains in these bonds in a financial year. This limit applies to the financial year of sale and the subsequent financial year if the 6-month investment window spans across two financial years.
Time Limit for Investment: The investment must be made within 6 months from the date of sale of the asset.
Amount of Exemption: The lower of the capital gain amount or the amount invested in the bonds.
Lock-in for Bonds: The bonds have a lock-in period of 5 years. You cannot sell or take a loan against these bonds during this period. If you do, the exemption claimed will be revoked.
These NHAI REC bonds for capital gain (and bonds from PFC, IRFC) are popular options. Remember the ₹50 lakh investment cap per financial year.
Section 54F: Exemption on Capital Gains from Sale of Any Asset (Other than Residential House) by Investing in a Residential House
The section 54f income tax act provides an exemption if an Individual or HUF sells any Long-Term Capital Asset (other than a residential house, e.g., plot of land, shares, gold) and invests the Net Consideration in one new Residential House in India. This capital gains exemption section 54f helps when you diversify your investments into residential property.
Key conditions for Section 54F exemption:
Asset Sold: Any Long-Term Capital Asset other than a residential house.
Investment In: One new residential house in India.
Timelines for New House:
Purchase: Within 1 year before or 2 years after the date of sale of the original asset.
Construction: Within 3 years after the date of sale of the original asset.
Reinvestment Amount: To get full exemption of capital gains, the entireNet Consideration (sale proceeds minus expenses on transfer) from the sale of the original asset must be invested in the new residential house.
Condition on Owning Other Houses: On the date of transfer of the original asset, the taxpayer should not own more than one residential house (other than the new one being purchased/constructed).
Amount of Exemption:
If the cost of the new house is equal to or greater than the Net Consideration, the entire capital gain is exempt.
If the cost of the new house is less than the Net Consideration, the exemption is proportionate: Exemption = (Capital Gains * Amount Invested in New House) / Net Consideration
Lock-in for New House: The new residential house must not be sold within 3 years of its purchase or construction. If sold, the exempted capital gain becomes taxable. Also, within these 3 years, you should not purchase another residential house (apart from the new one) or construct one (apart from the new one, if construction began earlier).
CGAS Applicable: The Capital Gains Account Scheme (CGAS) provisions apply if the net consideration is not invested before the ITR filing due date.
₹10 Crore Cap: Effective from April 1, 2023 (AY 2024-25), the maximum deduction that can be claimed under Section 54F is capped at ₹10 crore, even if the net consideration reinvested leads to a higher proportionate exemption. So, if the cost of the new house results in an exemption calculation greater than ₹10 crore, it will be restricted to ₹10 crore.
Understanding the "net consideration" reinvestment rule is critical for Section 54F.
Section 54B: Exemption on Sale of Agricultural Land
The section 54b capital gains exemption is for taxpayers (individuals or their parents) who sell Agricultural Land that was used for agricultural purposes for at least two years immediately before the sale. To claim this agricultural land capital gain tax exemption, the taxpayer must reinvest the capital gain amount in another agricultural land (urban or rural) within two years from the date of sale of the original land.
Key points for Section 54B:
Eligible Assessee: Individual or HUF.
Asset Sold: Agricultural land (can be short-term or long-term, but the land must have been used for agricultural purposes by the individual or their parents for at least 2 years immediately preceding the date of transfer).
Investment In: New agricultural land in India.
Time Limit for Reinvestment: Within 2 years from the date of sale.
Amount of Exemption: Lower of the capital gain or the cost of the new agricultural land.
Lock-in for New Land: If the new agricultural land is sold within 3 years of its purchase, the previously claimed exemption will be revoked and taxed.
CGAS Applicable: The Capital Gains Account Scheme can be used if the reinvestment is not made before the ITR filing due date.
This section specifically helps farmers and those involved in agriculture to continue their activities without being burdened by tax on the sale of their operational lands, provided they reinvest in similar land.
Capital Gains Account Scheme (CGAS), 1988
The CGAS scheme, or Capital Gains Account Scheme, 1988, is a provision that helps taxpayers claim exemptions under Section 54 or Section 54F even if they haven't purchased or constructed the new asset before the due date for filing their Income Tax Return (ITR). The purpose of the capital gains deposit scheme is to provide taxpayers more time to find and invest in a suitable property without losing the tax benefit.
How to use CGAS:
If the time limit for investing in a new house (under Sec 54) or reinvesting the net consideration (under Sec 54F) has not expired, but the ITR filing due date for the year of sale has arrived, the taxpayer can deposit the unutilized capital gain (for Sec 54) or the unutilized net consideration (for Sec 54F) into a Capital Gains Account Scheme (CGAS) with Specified Banks (usually public sector banks and certain other banks authorized by the government).
This deposit must be made before filing the ITR or the due date of filing the ITR, whichever is earlier.
The amount deposited in the CGAS account must then be utilized to purchase or construct the new residential house within the original time limits specified under Section 54 or Section 54F (i.e., 2 years for purchase or 3 years for construction from the date of sale of the original asset).
Consequences of Non-Utilization/Partial Utilization:
If the amount deposited in CGAS is not utilized fully or partially within the stipulated period, the unutilized amount will be treated as taxable capital gains in the financial year in which the specified period (2 or 3 years, as applicable) expires.
Taxpayers should be diligent about the timelines for utilization from the CGAS. You can find more about the Capital Gains Account Scheme, 1988 rules on official government portals. (Note: A direct link to CGAS rules might be on RBI or Income Tax Department sites, but a general Act link is provided as per outline).
Special Considerations for Capital Gains Tax on Property
Capital Gains on Inherited Property
When you receive an Inherited Property, there is no capital gains tax on inherited property India at the moment of inheritance. The tax liability arises only when the inheritor decides to sell this property. For calculating capital gains, the Cost to Previous Owner (the person from whom the property was inherited) is taken as the Cost of Acquisition for the inheritor. Similarly, the Holding Period for determining whether the gain is short-term or long-term includes the period for which the property was held by the previous owner.
If the previous owner had acquired the property before April 1, 2001, the inheritor can choose the Fair Market Value as on April 1, 2001, or the actual cost to the previous owner, whichever is higher, as the cost of acquisition. The indexation benefit, if applicable for LTCG, will also be calculated from the year the previous owner first held the asset or from FY 2001-02 if the FMV option is chosen. These provisions ensure that the inheritor is not unfairly taxed and that the inflationary effects over the entire holding period (including the previous owner's) are considered for LTCG. The tax on selling inherited house will follow the normal STCG or LTCG rules once the gain is computed.
Capital Gains for NRIs Selling Property in India
The NRI capital gains tax India property rules have specific considerations for Non-Resident Indians (NRIs). When an NRI sells property in India, the buyer is mandatorily required to deduct TDS (Tax Deducted at Source) under Section 195 of the Income Tax Act. The TDS rate for LTCG is generally 20% (plus applicable surcharge and cess). For STCG, if it's taxed at slab rates, the TDS might be at 30% (plus applicable surcharge and cess) or as per the rates in force. The buyer must deposit this TDS with the government.
NRIs can apply for a Lower TDS Certificate from the Income Tax Department if their actual tax liability is expected to be lower than the standard TDS rate. NRIs are also eligible to claim exemptions under Section 54, Section 54EC, and Section 54F, provided they fulfill all the conditions, including reinvestment in India as specified in those sections. For example, for Section 54, the new residential property must be purchased or constructed in India.
The Budget 2024 LTCG rate changes (option of 12.5% without indexation vs. 20% with indexation for properties acquired before July 23, 2024 and sold on or after that date) would also apply to NRIs if they are resident individuals or HUFs for the purpose of that specific option as per the fine print of the law (the search snippets indicate this option for resident individuals/HUFs for property acquired before 23 July 2024). Otherwise, the standard LTCG rate of 20% (with indexation, if applicable before the Budget 2024 cut-off for universal removal of indexation) or 12.5% (without indexation, post Budget 2024 changes) would apply. NRIs should check the provisions of any applicable Double Taxation Avoidance Agreements (DTAA) between India and their country of residence, which might offer some relief. For specialized help, NRIs might consider NRI taxation services.
Tax Implications for Jointly Owned Property
For capital gains on jointly owned property, the calculation and taxation are done individually for each co-owner based on their respective Ownership Share in the property. When a jointly owned property is sold, the capital gain is first calculated for the entire property. Then, this total gain is divided among the Co-owners according to their share as specified in the property documents (e.g., sale deed or agreement).
Each co-owner will then report their portion of the capital gain in their individual income tax return. The nature of the gain (short-term or long-term) will be the same for all co-owners, determined by the total holding period of the property. Importantly, each co-owner can individually claim tax for co-owners property sale exemptions under sections like Section 54, 54EC, or 54F based on their share of the capital gain and their fulfillment of the reinvestment conditions for that specific exemption. For example, if there are two co-owners with a 50% share each, and one co-owner reinvests their share of the capital gain into a new house under Section 54, they can claim the exemption for their portion of the gain, irrespective of what the other co-owner does.
How to Report Capital Gains and Claim Exemptions in ITR
You must report capital gains in ITR (Income Tax Return) for the financial year in which the property sale took place. The relevant ITR form for property sale is typically ITR-2 (for individuals and HUFs not having income from business or profession) or ITR-3 (for individuals and HUFs having income from business or profession). These forms have specific schedules (like Schedule CG) to report capital gains details.
To how to claim capital gain exemption in ITR, you need to provide details of the sale, the calculation of capital gains, the specific exemption section you are claiming (e.g., Section 54, 54EC, 54F), and the amount of investment made to claim that exemption. Fill out the respective schedules in the ITR form accurately. It is very important to maintain all supporting documents related to the property transaction and reinvestments. This includes the purchase deed of the old property, sale deed of the old property, proofs of expenses on transfer, cost of improvement proofs, purchase deed of the new asset (if claiming exemption), proof of investment in specified bonds, and bank account statements showing transactions related to the Capital Gains Account Scheme (CGAS), if applicable. Keeping these documents organized will be crucial if the Income Tax Department asks for clarifications or conducts scrutiny. When you File your Income Tax Return, ensure all information is correctly reported.
Checklist of Important Documents to Keep:
Purchase agreement/deed of the original property.
Sale agreement/deed of the original property.
Receipts for stamp duty and registration charges (for both purchase and sale).
Bills and receipts for any cost of improvement.
Receipts for expenses incurred on transfer (brokerage, legal fees).
Purchase agreement/deed of the new property (if claiming exemption under Sec 54/54F).
Proof of investment in specified bonds (e.g., bond certificates for Sec 54EC).
Bank statements related to CGAS deposit and withdrawal.
Valuation report (if FMV as on April 1, 2001, is considered).
Proof of share in property (for jointly owned property).
Conclusion: Plan Your Property Sale Wisely
To conclude, understanding property sale tax planning is key. Knowing if your profit is STCG or LTCG, calculating it correctly, and using available Exemptions can make a big difference to your tax outgo. Capital gains compliance is essential, especially with the recent Budget 2024 changes affecting LTCG tax rates and indexation benefits.
The rules for capital gains tax can seem a bit complex with various conditions and timelines for exemptions. Therefore, planning your property sale and subsequent reinvestments in a timely manner is very important. Professional advice can be highly beneficial to ensure you comply with all regulations and make the most of tax-saving opportunities. If you need help with your capital gains tax calculation or ITR filing, TaxBuddy experts are here to assist you. Consult with a TaxBuddy expert.
Frequently Asked Questions (FAQs) on Capital Gains Tax from Property Sale
What is the holding period for property to be considered long-term?
For immovable property like a house or land, if you hold it for more than 24 months, it is considered long-term.
Is indexation benefit available for STCG?
No, the indexation benefit is not available for calculating Short-Term Capital Gains (STCG). It is only available for Long-Term Capital Gains (LTCG) under certain conditions.
What is the latest CII for FY 2024-25 (AY 2025-26)?
The Cost Inflation Index (CII) for FY 2024-25 (AY 2025-26) is 363.
Can I claim exemption under Section 54 if I buy a house abroad?
No, to claim exemption under Section 54, the new residential house property must be purchased or constructed in India.
What is the maximum amount I can invest in Section 54EC bonds?
You can invest a maximum of ₹50 lakhs in specified bonds under Section 54EC in a financial year from your long-term capital gains.
If I sell my new house (bought under Section 54) in 2 years, what happens?
If you sell the new house (purchased or constructed by claiming Section 54 exemption) within 3 years of its purchase or completion of construction, the previously claimed capital gains exemption will be revoked. The amount of gain that was originally exempted will be considered as income (capital gain) in the year you sell the new house.
Is GST applicable on the sale of an old residential house?
Generally, Goods and Services Tax (GST) is not applicable on the sale of a completed residential house (i.e., a house that has received a completion certificate) by an individual who is not in the business of construction or property dealing. GST usually applies to under-construction properties.
How is capital gains tax calculated if I received property as a gift?
If you received property as a gift, there is no tax at the time of receiving the gift from specified relatives. However, when you sell this gifted property, capital gains tax will apply. The cost of acquisition for you will be the cost for which the previous owner acquired it. The holding period will also include the period the previous owner held the property.
Do I need to pay advance tax on capital gains?
Yes, if your total advance tax liability (after considering TDS) for the year is likely to be ₹10,000 or more, you are required to pay advance tax. Capital gains should be included in your income estimate for advance tax calculation for the quarter following the gain.
What happens if I don't reinvest the entire capital gain under Section 54?
If you reinvest only a portion of the capital gain under Section 54, the exemption will be limited to the amount you have reinvested in the new residential house. The remaining portion of the capital gain will be taxable.
Can NRIs claim exemption under Section 54EC?
Yes, Non-Resident Indians (NRIs) can claim exemption under Section 54EC by investing their long-term capital gains from the sale of land or building in India into specified bonds, provided they meet all other conditions of the section.
What is the ₹10 crore cap on capital gains exemptions?
Budget 2023 introduced a cap of ₹10 crore on the maximum deduction that can be claimed under Section 54 and Section 54F for investments made in a new residential property on or after April 1, 2023 (AY 2024-25). If the cost of the new asset or the eligible reinvestment amount leading to exemption exceeds ₹10 crore, the exemption will be limited to ₹10 crore.
If I sell property at a loss, can I set it off?
Yes. A Short-Term Capital Loss (STCL) can be set off against any Short-Term Capital Gain (STCG) or Long-Term Capital Gain (LTCG). A Long-Term Capital Loss (LTCL) can only be set off against LTCG. Unadjusted losses can be carried forward for up to 8 assessment years.
What are the consequences of not paying capital gains tax?
Not paying applicable capital gains tax can lead to consequences like interest on the unpaid tax amount, penalties levied by the Income Tax Department, and potentially legal proceedings or prosecution.
Which ITR form should I use for reporting capital gains from property?
Typically, individuals and HUFs who do not have income from business or profession should use ITR-2 to report capital gains from property. If you have income from business or profession along with capital gains, you would generally use ITR-3.
