Tax filing on Capital Gains
Tax filing on Capital Gains
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Capital Gain Tax On Sale Of Property

Updated on: 10 May, 2024 02:55 PM

Selling a property involves various legal and financial considerations, one of which is understanding capital gains tax. Knowing how much tax you'll owe on your profit can ensure a smoother transaction and avoid surprises.

If you are also wondering if there is any income tax on sale of property, don’t worry. This guide demystifies capital gain tax on property sale in India. This guide is your comprehensive guide on capital gain tax on sale of property. It covers all that you need to know about its meaning, tax rates, exemptions and calculations.

What are Capital Gains Tax on Sale of a Property?

Capital gains on sale of a property in India refer to the profit an individual makes upon selling it at a price higher than its purchase cost. This profit is considered income and is subject to tax on sale of property under the Income Tax Act.


What are Capital Gains Tax on Property Sale?

Taxpayers can estimate their capital gains on selling real estate property based on the holding property investment. It can be divided into two types: short-term capital gain (STCG) and long-term capital gain (LTCG). Some examples of capital gains include equity shares, residential properties, land, buildings, plots, etc.

Short-term Capital Gain on property sale

The short-term capital gain on property sale is the profit earned on the transfer of a property owned for two years or less.

Long-term Capital Gain on property sale

The Long-term capital gain on property sale is the profit earned on the transfer of a real estate property owned for more than two years.

Differentiate the short-term and long-term capital gains to evaluate your tax on sale of property, flat, or any other immovable property. Use image 1(a) for tax rates applicable on the property sale.

Capital Gain Tax Rates on Property Short Term Long Term
Condition When the property owner sold a property after holding it for less than two years When the property owner sold a property after holding it for more than two years
Real Estate Slab Rate 20% with indexation

For example, suppose you have sold a house or property that you have been holding for less than two years. 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 two years, a 20% tax rate is applicable. However, this rate does not include the indexation used to analyze the purchase price of the sold property. Likewise, it reflects the consequences of inflation on the sale.


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.

Look over the following criteria to avail of tax benefits on capital gains on property sale:

Short-Term Capital Gains (STCG) on Sale of Property

The basic exemptions for short-term capital gains on property are stated below:

  • 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.

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.
  • Let’s understand by an example.
  • Suppose a salaried person needs to shift his residence because he got a promotion in a new city. Now, he has to move to another city. Due to this he sells his old property and buys a new one.
  • In this case, Section 54 of the Income Tax Act 1961 offers relief. According to this section, any taxpayer who sells his house or residential property and, from the sale, purchases another place to live in will get tax relief. However, taxpayers need to fulfill many terms and conditions to claim tax relief only regarding property sales.

Exemptions from Tax on Selling Property in India

Check out other conditions for avail of tax exemption in capital gains on the property sale:

  1. When there is no reinvestment in a new residential property involved for two consecutive financial years, whereas the property sold was inherited from the parents.
  2. When it is agricultural land that is free from any taxation rule, remember that agricultural lands are not observed as a capital asset that has any tax liability.

Also, see the following key exemptions:

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

It is always advisable to consult a tax expert who can help you save maximum taxes and reduce your tax outgo. Hire a tax expert Today.


How to Calculate Capital Gain on Property?

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 two years.
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 two years.
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

Set Off & Carry Forward of Losses on Sale of Immovable Property

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.

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Frequently Asked Questions

Q- How to avoid capital gain tax on the sale of properties?

The ideal way to save on capital gains tax on property sales is reinvesting. The whole money incurred from selling a property can be used for purchasing another residential property within a certain time frame.


Q- How to calculate property gain on property sale?

Use the following formulas for prudent capital gains on the property for short-term and long-term (assuming the sales year to be FY-2023-24)

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

And

Sale Consideration as per Sec. 50C 500000
Less: Transfer Expenses 10000
Net sales Consideration 490000
Less: Indexed Cost of Acquisition(2014-2015) (250000/240*348) 362500
Less: Indexed Cost of Improvement 0
Long-Term Capital Gain 127500

Q- How much tax on capital gains property sale?

At the present date, the long-term capital gain on property is calculated at a 20% tax rate with some additional cess and surcharge rates if applicable. However, short-term capital gain from a property is charged at the normal slab rate.


Q- Should I need to buy another property to save tax?

Taxpayers should reinvest the capital gain incurred by a property sale to buy another residential property. It will let them avail of tax relief under section 54. However, they can also invest in Sec.54EC specified bonds within a certain time frame


Q- Do I need to pay a 20% tax on all capital gains?

There are various rates under the Income Tax Act based on the type of asset and period of holding such assets. However, long-term capital gains from the sale of property are charged at 20%.


Q- Do I immediately need to pay my capital gains tax?

There is no hush-hush situation to pay your capital gains tax immediately. However, there are some specified due dates on which you need to pay advance tax to avoid interest under sections 234B and 234C at the time of filing the ITR.


CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.