What is a Long Term Capital Asset?
For immovable property (land, building), if you hold the asset for more than 24 months, it becomes a long-term capital asset for tax purposes. The rules may differ slightly for older acquisitions or special cases.
What is the Tax Rate on Long Term Capital Gain on Property
Here’s how the tax rate on long-term capital gain on property currently applies:
- Before 23 July 2024: 20% with indexation benefit.
- On or after 23 July 2024: 12.5% without indexation.
- If property was acquired earlier, you can opt for either 20% (with indexation) or 12.5% (without), whichever is beneficial.
Calculating long term capital gain tax on property involves determining the profit earned after selling your property and then applying the applicable tax rate. You can use a long term capital gain tax on property calculator for quick estimation, or follow this detailed step-by-step process manually:
- Determine the Full Value of Consideration
This is the total sale price you receive for the property. If the property is sold below its stamp duty value, the higher of the two (sale price or stamp duty value) is considered for tax purposes.
- Deduct Expenses Incurred on Transfer
Subtract expenses directly related to the sale — such as brokerage fees, legal charges, advertising costs, and stamp duty paid by the seller. This gives you the net sale consideration.
- Calculate the Indexed Cost of Acquisition
For properties eligible for indexation (mainly those sold before 23 July 2024), adjust the purchase price using the Cost Inflation Index (CII).
Indexed Cost of Acquisition = Original Cost × (CII of Purchase Year / CII of Sale Year)
For sales after 23 July 2024, the new regime applies — indexation benefit is not available, and you must use the actual cost of acquisition instead.
- Add Indexed Cost of Improvement (if any)
If you made renovations or improvements to the property, these costs can also be adjusted for inflation (where applicable).
- Compute Long-Term Capital Gain (LTCG)
LTCG=Net Sale Consideration−(Indexed Cost of Acquisition+Indexed Cost of Improvement).
This gives your total taxable gain from the sale of property.
- Apply the Relevant Tax Rate
- 12.5% (without indexation) for property sold on or after 23 July 2024.
- 20% (with indexation) for property sold before that date or where you opt for the old regime.
The choice between the two depends on which results in lower tax liability.
Tip: To save time and reduce calculation errors, use an online Income Tax Calculator.
What are the Exemptions Available on Long Term Capital Gain Tax?
The Income Tax Act provides a number of provisions to assist you in lowering or entirely escaping long term capital gain tax on property if you reinvest the proceeds or fulfill certain conditions. The most in-demand exemptions are as follows:
1. Section 54 – Purchase or Construction of Another House
If you sell a residential property and reinvest the capital gain in another residential property, you can claim exemption under Section 54.
Key Conditions:
- The new property must be purchased within 1 year before or 2 years after the sale, or constructed within 3 years after the sale.
- The exemption is limited to the amount of capital gain reinvested.
- From FY 2023–24, the maximum exemption limit is ₹10 crore.
2. Section 54F – Sale of Non-Residential Asset
If you dispose of any other long-term capital asset (such as land, gold, or commercial property) and invest the whole proceeds of the sale in buying or building a residence, you are eligible for exemption under Section 54F.
Key Conditions:
- You should not own more than one residential house (other than the new one) at the time of sale.
- If the entire sale proceeds are reinvested, the entire gain is exempt; if only part is reinvested, the exemption is proportionate.
3. Section 54EC – Investment in Capital Gain Bonds
You can invest your long-term capital gain (up to ₹50 lakh) in specified bonds issued by NHAI or REC within 6 months from the date of transfer.
Key Conditions:
- Bonds have a lock-in period of 5 years.
- The investment must be made only from the capital gain amount, not the full sale proceeds.
4. Capital Gains Account Scheme (CGAS)
If you are unable to reinvest before the due date of filing your ITR, deposit the unutilized amount in a Capital Gains Account Scheme with a public sector bank. This allows you to claim provisional exemption until you use the funds for an eligible investment within the prescribed period.
Missed the ITR filing deadline for FY 2024-25? You can still file a late return and avoid income tax notices. Simply get in touch with our experts and experience a hassle-free ITR filing journey. Book an Online CA now!
