Budget 2025 Updates
As per Budget 2025, the income tax rebate u/s 87A has been increased to Rs.60,000, making an income upto Rs.12 lakhs as tax-free under the new tax regime. However, this increased rebate is not applicable on special grade incomes such as ‘Capital Gains’.
What is Capital Gains Tax?
The profit or gains received from the sale of a ‘capital asset’ is known as capital gains tax in India. Examples of such capital gain asset are land, trademarks, machinery, jewellery etc. These gains are taxable at a certain rate in the year in which the transfer of the capital asset takes place. There are two types of capital gains: Short term capital gains (STCG) and long term capital gains (LTCG).
What are Capital Gains Tax on the Sale of a Property?
Capital gains on the sale or transfer of a property in India refer to the profit an individual makes upon selling a property at a price higher than its purchase cost. This profit is considered income and is subject to tax on the sale of property under the Income Tax Act. Capital gain tax on the property is specifically on the monetary benefit made form the sale or transfer of residential properties or lands by an individual for whom such income is not their main domain of earning.
- Inclusion of Long-Term Capital Gains (LTCG) in ITR-1 and ITR-4
Previously, taxpayers with any LTCG were required to file more complex forms like ITR-2 or ITR-3. Now, individuals with LTCG up to ₹1.25 lakh from listed equity shares or equity mutual funds under Section 112A can file using the simpler ITR-1 (Sahaj) or ITR-4 (Sugam) forms, provided there are no carried forward losses.
- Segregation of Capital Gains Based on Transaction Date
The updated ITR forms now require taxpayers to report capital gains separately for transactions executed before and after July 23, 2024. This change aligns with the revised capital gains tax rules introduced in the Union Budget 2024, which, among other things, reduced the LTCG tax on real estate to 12.5% without indexation from the previous 20% with indexation.
- Reporting of Buyback Proceeds as Deemed Dividends
From October 1, 2024, proceeds received from the buyback of shares by domestic listed companies are to be treated as deemed dividends. The updated ITR forms require these proceeds to be reported under 'Income from Other Sources.' Additionally, the capital gains schedule should reflect zero sale proceeds, allowing the cost of acquisition to be claimed as a capital loss, which can be carried forward for up to eight assessment years.
- Enhanced Capital Gains Reporting in ITR-7
For trusts, NGOs, and other institutions filing ITR-7, there is now a requirement to disclose capital gains separately for transactions before and after July 23, 2024. This change ensures accurate tax calculations in light of the revised capital gains tax rules.
- Increased Threshold for Asset and Liability Reporting
In the ITR-2 form, the threshold for mandatory reporting of assets and liabilities has been raised to ₹1 crore. This adjustment aims to reduce the compliance burden for taxpayers with assets below this threshold.
Short-Term vs. Long-Term Capital Gains on Property
As per the Indian Income Tax Act, any capital gain arising from the sale of property is subject to tax. Property for the purpose of capital gain tax includes residential property, automobiles, land, buildings, gold, equity shares, and equity-oriented funds, etc.
Capital Gain Tax on sale of property can be divided into two types: short-term capital gain (STCG) and long-term capital gain (LTCG). This classification has been done on the basis of how long do you hold the property.
Short-term Capital Gain on Property Sale
If the asset is sold within 24 months of its acquisition, it is termed as short-term capital gain (STCG).
Long-term Capital Gain on Property Sale
If you sell the property after holding it for more than 24 months, the profit will be termed as long-term capital gains (LTCG).
Given below is the difference between short-term capital gain (STCG) and long-term capital gain (LTCG) on the sale of property, flat or any other immovable property.
| Particulars |
STCG on Property |
LTCG on Property |
| Tax rates |
Slab rate |
- (i) 20% with indexation (If sold before 23rd July, 2024)
- (ii) 12.5% without indexation (If sold on or after 23rd July, 2024)
For the sale of land and building after 23rd July 2024, the taxpayer has either of the above options to opt (However, this option is restricted for purchases made on or before 22nd July 2024)
|
For example, suppose you have sold a house or property that you have been holding for less than 24 months. Then, it will count in your gross total income for that financial year at the time of e-filing of your ITR. The taxes will be applicable according to the tax slab in which it will lie. Whereas if you’ve sold a property after holding it for more than 24 months, then a 20% tax rate (without indexation) or a 12.5% tax rate (after indexation) is applicable.
Note: The taxpayer has to option to choose to opt for the indexation benefit or calculate the tax without the indexation benefit.
What are Tax Exemptions on Capital Gains on Property Sales?
First of all, most of the tax exemptions available from capital gains on property are only allowed in the case of long-term capital gains on property. If you have a short-term capital gain from the sale of property, then such gains will be added to the total income and taxed at the applicable slab rates.
Given below are the criteria to avail of tax benefits on capital gains on property sale:
Exemptions on Short-Term Capital Gains (STCG) on Sale of Property
The basic exemptions for short-term capital gains on property are stated below:
Under the old Regime
- The resident or non-resident of India who is aged below 60 years are exempted from paying capital gains tax on the sale of property only if the total income is under the bar of Rs. 2,50,000.
- This exemption limit will increase for Indian residents who are aged between 60 and 80 years. They are allowed to take tax relief on total income up to Rs. 3,00,000 on a property sale.
Under the New Regime
Under the new regime, the residents or non-residents of India are exempted from paying capital gains tax on the sale of property if the total income is under Rs. 4,00,000.
Long-Term Capital Gains (LTCG) on Sale of Property
Depending on the kind of reinvestment, the investors can avail of tax exemptions under sections 54, 54GB, 54F, and 54EC of the Income Tax Act in India.
Exemptions from Capital Gain Tax on Sale of Property
Tax Exemption under Section 54
To qualify for an exemption under Section 54, an individual must meet the following criteria:
- Classification as Long-Term Capital Asset: The asset must be classified as a long-term capital asset.
- Residential House Sale: The asset sold must be a residential house, and the income from such a house should be chargeable as "Income from House Property".
-
Purchase or Construction Timeline:
- The seller must purchase a residential house either within 1 year before or 2 years after the date of sale/transfer.
- If constructing a house, the seller has up to 3 years from the date of sale/transfer.
- In the case of compulsory acquisition, the period for acquisition or construction is determined from the date of receipt of compensation (original or additional).
- Location of New House: The new residential house must be located in India. Purchasing a house abroad does not qualify for the exemption.
- Capital Gains Tax Exemption Limit: From April 1, 2023, the capital gains tax exemption under Section 54 to 54F is capped at Rs. 10 crore. Previously, there was no such limit.
- Cumulative Conditions: All conditions above must be met to avail of the exemption. If any condition is not fulfilled, the exemption cannot be claimed.
The exemption is available for the purchase of up to two residential houses in India. This exemption is subject to the capital gain not exceeding Rs. 2 crore and can be claimed only once in the seller's lifetime.
Tax Exemption under Section 54F
Here are the conditions that need to be fulfilled in order to claim the exemption under section 54F -
A taxpayer must invest the net proceeds from the sale of property for purchasing a new residential property to claim an exemption.
Conditions for the new residential property:
- Purchase: Within 1 year before or 2 years after selling the old asset.
- Construction: Within 3 years of selling the old asset.
Additional Conditions:
- On the date of sale, the taxpayer should not own more than one residential house, except the one bought for claiming this exemption.
- The taxpayer must not purchase another house within 2 years or construct one within 3 years from the transfer date.
If these conditions are not met, the exempted capital gains become taxable in the year the additional property is purchased or constructed
Note: The maximum deduction under Section 54F is capped at ₹10 crore, effective from April 1, 2024.
Tax Exemption under Section 54EC
For an exemption under Section 54EC, an individual must meet the following conditions:
If unable to invest before filing taxes for that year, deposit the amount in a PSU bank or any bank listed under the Capital Gains Account Scheme (1988).
Convert this deposit into an investment within 2 years from the date of sale. Otherwise, it will be considered a short-term capital gain in the year the period lapses.
Tax Exemption under Section 54B
This exemption applies only to capital gains from the sale of agricultural land outside of a rural area. A rural area is described as follows:
To qualify for this exemption, the following conditions must be met:
If there is a delay in investment, deposit the amount in a bank under the long-term capital gains scheme.
Complete the investment within 2 years, or it will be treated as a short-term capital gain in the year of expiry.
Capital Gain Tax Exemptions under Section 54, 54F, 54EC, and 54GB
| Section |
54 |
54EC |
54F |
54GB |
| Eligibility |
Any Individual / HUF |
Any Taxpayer |
Any Individual / HUF |
Any Individual / HUF |
| Sold asset |
Residential house/land |
Long term capital asset /Land/building / or both |
Long term asset other than Residential property |
Residential property |
| Investment made in |
New India Residential house (only 1) |
Specific bonds of NHAI / RECL/PFC/IRFC |
New Indian Residential house property (only 1) |
Equity shares where assess holds 50%+ shares of the company |
| Time of purchase |
Within 1 year before / 2 years after (if constructed within the time period of 3 years after transfer) |
Within 6 months (after the transfer) |
Within 1 year before / 2 years after (if constructed within the time period of 3 years after transfer) |
Before the ITR due date |
| Special case |
If sold within 3 years, capital gain (that was exempted earlier) will be deducted from its cost of acquisition. |
On sale of securities within 5 years, LTCA (that was exempted earlier) is taxable in the year of sale. |
If sold within 3 years, capital gain (that was exempted earlier) is taxable in the year of sale. |
If sold within 5 years the capital gain (that was exempted earlier) is taxable in the year of sale. |
| Threshold |
10 cr |
|
|
|
Capital Gains Account Scheme (CGAS)
The Capital Gains Account Scheme (CGAS) of 1988 is a scheme introduced by the Government of India under the Income Tax Act, 1961. It provides taxpayers with a means to save on capital gains tax by depositing the proceeds from the sale of certain assets into designated accounts. These accounts are maintained with authorized banks or financial institutions.
The tax payers can avail of the benefit of exemption from Capital Gains, if the amount of Capital Gains or the net consideration is deposited in the public sector bank on or before the due date of filling a return of income by the tax payers. Read more.
How to Calculate Capital Gains Tax on Property Sales?
Short-term Capital Gain Tax Computation on property
The short-term capital gain or STCG on the property is the profit earned on a property sale that you have owned for less than 24 months.
Use the following formula for prudent capital gains on the property for the short term:
| Sale Consideration |
180000 |
| Less: Transfer Expenses |
5000 |
| Net sales Consideration |
175000 |
| Less: Cost of Acquisition |
150000 |
| Less: Cost of Improvement |
0 |
| Short-Term Capital Gain |
25000 |
Long-term Capital Gain Tax Computation on property
A long-term capital gain on the property is the profit earned on a property sale that you have owned for more than 24 months.
Use the following formula for prudent capital gains on the property for the long term:
| Sale Consideration as per Sec. 50C |
|
500000 |
| Less: Transfer Expenses |
|
10000 |
| Net sales Consideration |
|
490000 |
| Less: Indexed Cost of Acquisition(2014-2015) (based on CII) |
(250000/240*348) |
362500 |
| Less: Indexed Cost of Improvement |
|
0 |
| Long-Term Capital Gain |
|
127500 |
How to Offset Capital Losses on Property Sales?
The loss incurred from the sale of an immovable property, held for a period exceeding 24 months, is classified as a Long-Term Capital Loss (LTCL). According to income tax regulations governing the set-off and carry forward of losses, the taxpayer has the option to offset LTCL against Long-Term Capital Gains on property exclusively. Any remaining loss can be carried forward for up to 8 years, with the provision to set it off only against LTCG during this period.
On the other hand, if the immovable property is held for up to 24 months, resulting in a loss upon sale, it is categorized as a Short-Term Capital Loss (STCL). In this scenario, the taxpayer has the flexibility to set off STCL against both Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG). Similarly, any unabsorbed loss can be carried forward for 8 years and applied against STCG and LTCG only during this period.
Remember! If you want to carry forward your losses, you must file an ITR. While there are many ways to save tax on property sales, capital gain tax can seem complicated. Don’t worry! Our experts can help you save tax on capital gains on the sale of property and ensure a seamless filing experience. Get CA-assisted capital gain tax filing
Property Sale
