Capital Gains Tax on Sale of Property in India

Capital Gains Tax on Sale of Property in India. Selling a property in India can lead to significant profits, especially with rising real estate values. However, these profits, termed as capital gains, attract taxation under the Income Tax Act. In this article, we will explain everything about Capital Gains Tax on Property Sales, including its types, exemptions, calculations, and tips to save on tax, using easy-to-understand language.
What is Capital Gains Tax?
Capital Gains Tax on Property Sales is the tax levied on the profit earned from selling a capital asset, such as land or residential property. This gain is classified under "Income from Capital Gains" in the Income Tax Return. There are two types of capital gains based on the holding period of the property: Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG).
If a person sells a property and earns a profit, that profit is considered a capital gain. It is taxed in the year in which the property is sold or transferred. The classification into short-term and long-term depends on how long the property was held before selling.
What are Capital Gains on the Sale of a Property?
Capital Gains on Property Tax refers to the profit made by selling a property at a price higher than its purchase cost. This is considered taxable income under the Indian tax laws. The tax applies to any residential property, commercial property, or land that is sold for a profit by someone who is not in the regular business of property trading.
The gain becomes taxable whether the sale is voluntary or through compulsory acquisition. In both cases, the profit is treated as capital gains and taxed accordingly.
Short-Term vs. Long-Term Capital Gains on Property
Understanding whether your capital gain is short-term or long-term is essential because it affects the tax rate.
Short-Term Capital Gain (STCG): If a property is sold within 24 months (2 years) from the date of purchase, the gain is classified as STCG. This gain is added to your total income and taxed according to the income tax slab rate applicable to you.
Long-Term Capital Gain (LTCG): If the property is sold after 24 months, the profit is termed LTCG. Earlier, LTCG was taxed at 20% with indexation. From July 23, 2024, you can choose between:

20% with indexation
12.5% without indexation

However, this choice is available only if the property was purchased before July 22, 2024.
Tax Rates on Capital Gains on Property Tax

Particulars

STCG on Property

LTCG on Property

Tax Rate

As per slab rate

20% with indexation or 12.5% without indexation

Holding Period

Less than 24 months

More than 24 months

Basis of Calculation

Purchase price

Indexed cost of acquisition

For STCG, your total income including the gain is taxed as per your individual tax slab. For LTCG, you may opt for indexation (adjusting the purchase cost for inflation), which lowers your taxable gain.
Budget 2025 Update
As per the Budget 2025, a rebate of Rs. 60,000 under Section 87A is introduced for incomes up to Rs. 12 lakhs under the new tax regime. However, this rebate is not applicable to special incomes such as Capital Gains on Property Tax.
Tax Exemptions on Capital Gains on Property Sales
Short-Term Capital Gains (STCG): No specific exemptions are available for STCG unless your total income (including the capital gain) falls below the basic exemption limit. Under the old regime, the limit is Rs. 2.5 lakh. For senior citizens, it is Rs. 3 lakh. Under the new regime, the exemption is Rs. 4 lakh.
Long-Term Capital Gains (LTCG): Several exemptions are available to reduce or eliminate tax on LTCG by reinvesting the capital gains in specific assets. These exemptions are provided under Sections 54, 54F, 54EC, and 54GB.
Section 54 – Exemption on Sale of Residential House
If you sell a residential property and reinvest the capital gains into another residential property, you can claim exemption under Section 54. The conditions are:

The asset sold must be a long-term capital asset.
The new house must be purchased within 1 year before or 2 years after the sale, or constructed within 3 years.
The new property must be in India.
The exemption limit is capped at Rs. 10 crore from April 1, 2023.
The exemption is available for investment in two residential properties if the capital gains do not exceed Rs. 2 crore. This benefit can be availed only once in a lifetime.

Section 54F – Exemption on Sale of Non-Residential Assets
Under Section 54F, if you sell an asset other than a residential house (e.g., land) and reinvest the entire sale proceeds into a residential house, you can claim exemption. The key conditions are:

You must not own more than one residential house on the date of transfer.
You must not purchase or construct another house within the next 2 or 3 years, respectively.
The exemption is also capped at Rs. 10 crore effective from April 1, 2024.

Section 54EC – Exemption via Bonds
If you don’t wish to reinvest in property, you can invest your LTCG in specific bonds issued by REC, NHAI, IRFC, or PFC under Section 54EC. Conditions include:

Investment must be made within 6 months of sale.
Maximum investment allowed is Rs. 50 lakh.
Bonds must be held for at least 5 years. If sold before, the earlier exempted capital gain becomes taxable.

Section 54GB – Exemption for Investment in Startups
This section provides exemption if the LTCG is invested in a startup. Conditions:

The seller must acquire 50% or more equity shares in an eligible startup.
Investment must be made before the due date of filing ITR.
Shares must be held for at least 5 years.

Capital Gains Account Scheme (CGAS)
If you cannot reinvest the capital gains before the due date of filing your tax return, you can deposit the amount in the Capital Gains Account Scheme (CGAS) in any public sector bank. This allows you to claim exemption until you make the actual investment. If the amount is not utilized within the specified period (2-3 years), it becomes taxable.
How to Calculate Capital Gains Tax on Property Sales?
Short-Term Capital Gain Calculation: Let’s say:

Sale Price: Rs. 1,80,000
Transfer Expenses: Rs. 5,000
Purchase Cost: Rs. 1,50,000

STCG = (180000 - 5000 - 150000) = Rs. 25,000 This amount will be added to your gross income and taxed as per your slab rate.
Long-Term Capital Gain Calculation: Example:

Sale Price: Rs. 5,00,000
Transfer Expenses: Rs. 10,000
Indexed Purchase Cost (2014-15 CII used): Rs. 3,62,500

LTCG = (500000 - 10000 - 362500) = Rs. 1,27,500 This will be taxed at 20% with indexation or 12.5% without indexation (depending on eligibility).
How to Offset Capital Losses on Property Sales?
If you make a loss on selling your property, you can use it to reduce future capital gains. Here is how:
Long-Term Capital Loss (LTCL):

Can be set off only against LTCG.
Can be carried forward for 8 years.

Short-Term Capital Loss (STCL):

Can be set off against both STCG and LTCG.
Also carried forward for up to 8 years.

This is useful when you incur a loss in one year and gain in another, helping to reduce the overall tax burden.
Comparison Table: Section 54, 54F, 54EC, and 54GB

Section

Eligibility

Asset Sold

Investment Made In

Time Limit

Special Conditions

Individual/HUF

Residential Property

New Residential Property

1 year before or 2/3 years after

Max limit Rs. 10 crore; 2 properties once

54F

Individual/HUF

Any Long-term Asset

New Residential Property

Same as Section 54

Must not own more than 1 house

54EC

All Taxpayers

Land/Building

Specified Bonds (NHAI, REC, etc.)

Within 6 months

Lock-in 5 years, max Rs. 50 lakh

54GB

Individual/HUF

Residential Property

50%+ Equity in Eligible Startup

Before ITR due date

Shares locked for 5 years

Conclusion
Knowing Capital Gains Tax on Property Sales is important for every property seller in India. Whether your gain is short-term or long-term determines your tax rate and your exemption options. Long-term capital gains offer more scope for saving taxes through reinvestment and bond investments. You must also stay updated with recent changes in the law, such as the Budget 2025 amendment on rebate and exemption caps.
Always plan your sale and reinvestment smartly, maintain proper documentation, and seek guidance if needed. By using available exemptions under sections 54, 54F, 54EC, and 54GB, you can significantly reduce your tax liability on capital gains.
Need expert guidance? Contact a Compliance Calendar experts through email info@ccoffice.in or Call/Whatsapp at +91 9988424211.
Frequently Asked Questions (FAQs)
Q1. What exactly are capital gains according to the Indian Income Tax Act?
This question addresses the fundamental definition provided in the article, clarifying what constitutes a capital gain in the context of property sales.
Q2. How does the Union Budget 2024 impact the holding period for classifying capital gains on property as short-term or long-term?
This question directly addresses one of the key updates mentioned in the article, focusing on the change in holding periods for different types of capital assets, particularly listed securities and other immovable property.
Q3. What is the difference between Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) tax in the context of property sales?
This question seeks to understand the fundamental distinction in how profits from property sales are categorized and taxed based on the holding period.
Q4. If I sell a residential property that I have held for 15 months, will the profit be considered STCG or LTCG based on the Union Budget 2024?
This is a practical, scenario-based question that applies the updated holding period rules to a common situation, helping readers understand the real-world implications of the changes.
Q5. Does the article provide information on the specific tax rates applicable to STCG and LTCG on the sale of property?
This question probes whether the article delves into the actual tax percentages for short-term and long-term capital gains, which is a crucial aspect for individuals planning to sell property.

Selling a property in India can lead to significant profits, especially with rising real estate values. However, these profits, termed as capital gains, attract taxation under the Income Tax Act. In this article, we will explain everything about Capital Gains Tax on Property Sales, including its types, exemptions, calculations, and tips to save on tax, using easy-to-understand language.

What is Capital Gains Tax?

Capital Gains Tax on Property Sales is the tax levied on the profit earned from selling a capital asset, such as land or residential property. This gain is classified under "Income from Capital Gains" in the Income Tax Return. There are two types of capital gains based on the holding period of the property: Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG).

If a person sells a property and earns a profit, that profit is considered a capital gain. It is taxed in the year in which the property is sold or transferred. The classification into short-term and long-term depends on how long the property was held before selling.

What are Capital Gains on the Sale of a Property?

Capital Gains on Property Tax refers to the profit made by selling a property at a price higher than its purchase cost. This is considered taxable income under the Indian tax laws. The tax applies to any residential property, commercial property, or land that is sold for a profit by someone who is not in the regular business of property trading.

The gain becomes taxable whether the sale is voluntary or through compulsory acquisition. In both cases, the profit is treated as capital gains and taxed accordingly.

Short-Term vs. Long-Term Capital Gains on Property

Understanding whether your capital gain is short-term or long-term is essential because it affects the tax rate.

Short-Term Capital Gain (STCG): If a property is sold within 24 months (2 years) from the date of purchase, the gain is classified as STCG. This gain is added to your total income and taxed according to the income tax slab rate applicable to you.

Long-Term Capital Gain (LTCG): If the property is sold after 24 months, the profit is termed LTCG. Earlier, LTCG was taxed at 20% with indexation. From July 23, 2024, you can choose between:

20% with indexation
12.5% without indexation

However, this choice is available only if the property was purchased before July 22, 2024.

Tax Rates on Capital Gains on Property Tax

Particulars	STCG on Property	LTCG on Property
Tax Rate	As per slab rate	20% with indexation or 12.5% without indexation
Holding Period	Less than 24 months	More than 24 months
Basis of Calculation	Purchase price	Indexed cost of acquisition

Budget 2025 Update

As per the Budget 2025, a rebate of Rs. 60,000 under Section 87A is introduced for incomes up to Rs. 12 lakhs under the new tax regime. However, this rebate is not applicable to special incomes such as Capital Gains on Property Tax.

Tax Exemptions on Capital Gains on Property Sales

Short-Term Capital Gains (STCG): No specific exemptions are available for STCG unless your total income (including the capital gain) falls below the basic exemption limit. Under the old regime, the limit is Rs. 2.5 lakh. For senior citizens, it is Rs. 3 lakh. Under the new regime, the exemption is Rs. 4 lakh.

Long-Term Capital Gains (LTCG): Several exemptions are available to reduce or eliminate tax on LTCG by reinvesting the capital gains in specific assets. These exemptions are provided under Sections 54, 54F, 54EC, and 54GB.

Section 54 – Exemption on Sale of Residential House

If you sell a residential property and reinvest the capital gains into another residential property, you can claim exemption under Section 54. The conditions are:

The asset sold must be a long-term capital asset.
The new house must be purchased within 1 year before or 2 years after the sale, or constructed within 3 years.
The new property must be in India.
The exemption limit is capped at Rs. 10 crore from April 1, 2023.
The exemption is available for investment in two residential properties if the capital gains do not exceed Rs. 2 crore. This benefit can be availed only once in a lifetime.

Section 54F – Exemption on Sale of Non-Residential Assets

Under Section 54F, if you sell an asset other than a residential house (e.g., land) and reinvest the entire sale proceeds into a residential house, you can claim exemption. The key conditions are:

You must not own more than one residential house on the date of transfer.
You must not purchase or construct another house within the next 2 or 3 years, respectively.
The exemption is also capped at Rs. 10 crore effective from April 1, 2024.

Section 54EC – Exemption via Bonds

If you don’t wish to reinvest in property, you can invest your LTCG in specific bonds issued by REC, NHAI, IRFC, or PFC under Section 54EC. Conditions include:

Investment must be made within 6 months of sale.
Maximum investment allowed is Rs. 50 lakh.
Bonds must be held for at least 5 years. If sold before, the earlier exempted capital gain becomes taxable.

Section 54GB – Exemption for Investment in Startups

This section provides exemption if the LTCG is invested in a startup. Conditions:

The seller must acquire 50% or more equity shares in an eligible startup.
Investment must be made before the due date of filing ITR.
Shares must be held for at least 5 years.

Capital Gains Account Scheme (CGAS)

If you cannot reinvest the capital gains before the due date of filing your tax return, you can deposit the amount in the Capital Gains Account Scheme (CGAS) in any public sector bank. This allows you to claim exemption until you make the actual investment. If the amount is not utilized within the specified period (2-3 years), it becomes taxable.

How to Calculate Capital Gains Tax on Property Sales?

Short-Term Capital Gain Calculation: Let’s say:

Sale Price: Rs. 1,80,000
Transfer Expenses: Rs. 5,000
Purchase Cost: Rs. 1,50,000

STCG = (180000 - 5000 - 150000) = Rs. 25,000 This amount will be added to your gross income and taxed as per your slab rate.

Long-Term Capital Gain Calculation: Example:

Sale Price: Rs. 5,00,000
Transfer Expenses: Rs. 10,000
Indexed Purchase Cost (2014-15 CII used): Rs. 3,62,500

LTCG = (500000 - 10000 - 362500) = Rs. 1,27,500 This will be taxed at 20% with indexation or 12.5% without indexation (depending on eligibility).

How to Offset Capital Losses on Property Sales?

If you make a loss on selling your property, you can use it to reduce future capital gains. Here is how:

Long-Term Capital Loss (LTCL):

Can be set off only against LTCG.
Can be carried forward for 8 years.

Short-Term Capital Loss (STCL):

Can be set off against both STCG and LTCG.
Also carried forward for up to 8 years.

This is useful when you incur a loss in one year and gain in another, helping to reduce the overall tax burden.

Comparison Table: Section 54, 54F, 54EC, and 54GB

Section	Eligibility	Asset Sold	Investment Made In	Time Limit	Special Conditions
54	Individual/HUF	Residential Property	New Residential Property	1 year before or 2/3 years after	Max limit Rs. 10 crore; 2 properties once
54F	Individual/HUF	Any Long-term Asset	New Residential Property	Same as Section 54	Must not own more than 1 house
54EC	All Taxpayers	Land/Building	Specified Bonds (NHAI, REC, etc.)	Within 6 months	Lock-in 5 years, max Rs. 50 lakh
54GB	Individual/HUF	Residential Property	50%+ Equity in Eligible Startup	Before ITR due date	Shares locked for 5 years

Conclusion

Knowing Capital Gains Tax on Property Sales is important for every property seller in India. Whether your gain is short-term or long-term determines your tax rate and your exemption options. Long-term capital gains offer more scope for saving taxes through reinvestment and bond investments. You must also stay updated with recent changes in the law, such as the Budget 2025 amendment on rebate and exemption caps.

Always plan your sale and reinvestment smartly, maintain proper documentation, and seek guidance if needed. By using available exemptions under sections 54, 54F, 54EC, and 54GB, you can significantly reduce your tax liability on capital gains.

Need expert guidance? Contact a Compliance Calendar experts through email info@ccoffice.in or Call/Whatsapp at +91 9988424211.

Frequently Asked Questions (FAQs)

Q1. What exactly are capital gains according to the Indian Income Tax Act?

This question addresses the fundamental definition provided in the article, clarifying what constitutes a capital gain in the context of property sales.

Q2. How does the Union Budget 2024 impact the holding period for classifying capital gains on property as short-term or long-term?

This question directly addresses one of the key updates mentioned in the article, focusing on the change in holding periods for different types of capital assets, particularly listed securities and other immovable property.

Q3. What is the difference between Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) tax in the context of property sales?

This question seeks to understand the fundamental distinction in how profits from property sales are categorized and taxed based on the holding period.

Q4. If I sell a residential property that I have held for 15 months, will the profit be considered STCG or LTCG based on the Union Budget 2024?

This is a practical, scenario-based question that applies the updated holding period rules to a common situation, helping readers understand the real-world implications of the changes.

Q5. Does the article provide information on the specific tax rates applicable to STCG and LTCG on the sale of property?

This question probes whether the article delves into the actual tax percentages for short-term and long-term capital gains, which is a crucial aspect for individuals planning to sell property.