Income Tax Act 2025 Update
- The Income Tax Act, 2025 have replaced the terms Previous Year & Assessment Year with the term Tax Year. For example, if the income was earned in the year 2025-26, it will be called Tax Year 2025-26. However, since many taxpayers are still familiar with the terms Financial Year (FY) and Assessment Year (AY), this guide continues to use them for easier understanding.
- The new Income Tax Act has renumbered most of the sections and simplified them by reducing the number of sections, schedules, etc.
You can refer to the complete section mapping of Income Tax Act 1961 vs Income Tax Act 2025 here.
What is Capital Gains Tax on Sale of 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 from the sale or transfer of residential properties or lands by an individual for whom such income is not their main domain of earning.
What is a Capital Asset?
Capital assets are the property you own and can be transferred, like land, buildings, shares, patents, trademarks, jewelry, leasehold rights, machinery, vehicles, etc.
Here is a list of assets that do not fall under the category of capital assets:–
- The stock of consumables or raw materials held for use in business or profession.
- Personal belongings meant for personal use like clothes, furniture, etc.
- A piece of agricultural land is located in a rural area.
- Special bearer bonds, 6.5% gold bonds (1977), 7% gold bonds (1980), or national defense gold bonds (1980) which the Central Government has issued.
- Gold deposit bond (1999), issued under the gold deposit scheme or deposit certificate issued under the Gold Monetisation Scheme, 2015, notified by the Central Government.
Types of Capital Gains
Capital assets are divided into two types based on the period after which they are sold. The types of capital assets are as follows –
Short-term Capital Gains
Short-term capital assets are those held for less than or equal to 24 months. This means that if you sell off the asset within 24 months of buying it, it would be called a short-term capital asset. However, in some cases, the holding period is reduced to 12 months. These cases include the following –
| Capital Asset |
Holding Period |
| Immovable property like houses, land, and buildings. |
24 months |
| Equity Shares of a company listed on the stock exchange, units of UTI, zero-coupon bonds, and equity-oriented mutual funds. |
12 months |
Long-term Capital Gains
Long-term capital assets are those held for more than 24 months and then sold off. Immovable property sold after 24 months would be categorized as a long-term capital asset. In the case of equity shares, securities, mutual fund units, etc., however, the holding period of 12 months is applicable. If sold off after 12 months, they would be called long-term capital assets.
Generally, the holding period of capital assets to be considered as long-term is 24 months. However, there are certain exceptions to this rule. Here’s a summary of different types of capital assets and the period of holding, after which they are considered long-term capital assets -
| Capital Assets |
Holding Period |
| Equity Shares or Preference Shares in a company (listed) |
12 months |
| Equity Shares or Preference Shares in a company (unlisted) |
24 months |
| Immovable Property (land or building or both) |
24 months |
| Securities like bonds, debentures, derivatives, and government securities (listed) |
12 months |
| Units of UTI (Unit Trust of India) (listed or unlisted) |
12 months |
| Units of equity-oriented mutual funds (listed or unlisted) |
12 months |
| Units of debt-oriented mutual funds (listed or unlisted) |
24 months |
| Zero coupon bonds (listed or unlisted) |
12 months |
- 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 indexation 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.
Capital Gain Tax Exemptions under Section 54, 54F, 54EC, and 54GB
Exemption can be claimed on long term capital gains tax on sale of property.
| 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 |
NA |
NA |
NA |
New vs Old STCG and LTCG Rule for House Property
Here’s a comparison between the new and the old rule for capital gains on house property -
| Asset Class |
Old Rule (Until July 22, 2024) |
New Rule (From July 23, 2024) |
| House Property |
STCG:
- Sold within 2 years
- Taxed as per income slab
LTCG:
- Sold after 2 years
- 20% with indexation
- Applies to all residential statuses
|
STCG:
LTCG:
-
Bought ≤ July 22 & sold ≥ July 23:
- ROR/RONR: Lower of 20% with indexation or 12.5% without
- NR: 12.5% without indexation
- Bought ≥ July 23: 12.5% without indexation (all)
|
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.
Note: This guide will help you understand the capital gains tax on the sale of residential houses by individuals, residential plots & flats/houses. These methods might not work for commercial property sales and land sales.
How to Calculate Capital Gains Tax (With & Without Indexation)
Calculating capital gains on the sale of a property is a crucial aspect of your income tax filing. Here’s a comprehensive guide to help you determine your taxable capital gains with ease:
Determine the Sale Value
Note the total sale consideration received from the buyer for your property.
Deduct Transfer-Related Expenses
Subtract expenses directly related to the sale, such as broker’s commission, legal fees, and stamp duty paid by you at the time of transfer.
Ascertain the Cost of Acquisition
This includes the original purchase price of the property, along with expenses like stamp duty and registration charges paid during the purchase.
Include the Cost of Improvements (if any)
Add only the expenses incurred towards capital improvements (e.g., structural changes, renovations). Day-to-day repairs and maintenance do not qualify.
Apply Indexation (for Long-Term Capital Gains)
If your property was held for more than 24 months, indexation helps adjust the cost of acquisition and improvements as per inflation using the Cost Inflation Index (CII) notified by the Income Tax Department.
Indexed Cost Calculation:
- Indexed Cost of Acquisition = Cost of Acquisition × (CII in year of sale / CII in year of purchase)
- Indexed Cost of Improvement = Cost of Improvement × (CII in year of sale / CII in year of improvement)
Calculate Net Capital Gain
- For Long-Term Capital Gains (LTGC):
Capital Gain = (Net Sale Value) – (Indexed Cost of Acquisition + Indexed Cost of Improvements)
- For Short-Term Capital Gains (STCG):
No indexation is allowed.
Capital Gain = (Net Sale Value) – (Cost of Acquisition + Cost of Improvements)
Result: Taxable Capital Gain
The amount you arrive at (after set-offs for exemptions, if any) represents your taxable capital gains from the property sale.
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 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 |
Calculating capital gains on sale of property can be tricky. You can also use a capital gains calculator to calculate the capital gains amount. Don’t worry—our experts at Tax2Win can help you with accurate calculations, tax planning, and filing your income tax returns. Connect Today
Capital Gain Tax on Sale of Property - Recent Case Studies
1. Joint Ownership and Section 54 Exemption – ITAT Mumbai Ruling (2025)
In a landmark ruling, the Mumbai Income Tax Appellate Tribunal (ITAT) granted long-term capital gains (LTCG) tax exemption under Section 54 to a husband-wife duo who sold two separate residential properties and invested the proceeds in a jointly purchased new house.
The tax department had initially denied the exemption, citing that purchasing the new property in joint names disqualified them under Section 54. However, the tribunal clarified that as long as the capital gains were reinvested in a residential property within the specified timeline, joint ownership between spouses does not violate the provisions of Section 54.
Key takeaway: This ruling reinforces that spouses can claim LTCG exemption under Section 54 even when the new property is held jointly, provided the reinvestment conditions are met.
2. Mutual Funds and Capital Gains Tax Planning
While not a court case, a recent update by Bajaj Finserv offers a practical example relevant to capital gains tax planning—particularly when switching from property to mutual fund investments.
Under the updated rules:
- Equity mutual funds held for more than 12 months attract LTCG tax at 12.5%, with the first ₹1.25 lakh exempt.
- Debt funds, if purchased after April 1, 2023, no longer enjoy indexation benefits and are taxed as per slab rates.
- However, older debt fund investments (before April 2023) are still eligible for indexation-based LTCG benefits.
Key takeaway: Taxpayers planning to reinvest capital gains (from property sales) in mutual funds must carefully consider asset type and holding period to optimize tax liability.
Sold Property at a Loss? Here’s How You Can Save Tax Through ITR Filing
Many taxpayers assume that selling a property at a loss offers no tax benefit. However, under income tax rules, losses from property sales can actually help reduce future tax liability if reported correctly in the Income Tax Return (ITR). If the sale price of a property is lower than its purchase cost (after applicable adjustments), the difference is treated as a capital loss.
The tax treatment depends on the holding period:
- Property held for up to 24 months → Short-Term Capital Loss (STCL)
- Property held for more than 24 months → Long-Term Capital Loss (LTCL)
Capital losses from property sales can be reported in the ITR under the “Capital Gains” schedule. However, taxpayers must file the return within the due date if they want to carry forward the loss to future years. This is one of the most important conditions many taxpayers miss.
How Capital Loss Set-Off Works
Short-Term Capital Loss (STCL)
STCL can be adjusted against:
- Short-term capital gains
- Long-term capital gains
Long-Term Capital Loss (LTCL)
LTCL can only be adjusted against:
For example: A long-term loss from property can later be adjusted against gains from:
- Sale of another property
- Mutual funds
- Equity investments
- Gold ETFs
subject to applicable tax rules.
Carry Forward Benefit for 8 Years
If the capital loss cannot be fully adjusted in the same financial year, it can usually be carried forward for up to 8 assessment years.
This allows taxpayers to use the loss against future capital gains and reduce future tax outgo.
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