Property Sale Capital Gains Tax: Complete Guide with Exemptions
Everything you need to know about capital gains on property sale including Section 54, 54EC, and 54F exemptions
- STCG: Property held less than 24 months - taxed at your slab rate
- LTCG: Held 24+ months - 12.5% tax (no indexation from July 2024)
- Section 54: Reinvest in new house within 2 years to avoid LTCG
- Section 54EC: Invest up to Rs.50L in NHAI/REC bonds within 6 months
Understanding Capital Gains on Property
When you sell a property for more than its purchase price, the profit is called Capital Gains. The tax you pay depends on how long you held the property.
What is Indexation?
Indexation adjusts the purchase price for inflation using Cost Inflation Index (CII) published by the government. This reduces your taxable gains significantly!
Purchase (2015)
₹50L
Sale (2024)
₹1.2cr
Without Indexation:
Gain: ₹1.2cr - ₹50L = ₹70 lakh
Tax @ 20%: ₹14 lakh
With Indexation:
Indexed Cost: ₹50L × (363/254) = ₹71.5 lakh
Gain: ₹1.2cr - ₹71.5L = ₹48.5 lakh
Tax @ 20%: ₹9.7 lakh
That's a 30.7% reduction in tax liability
How to Save Tax on Property Sale
Full exemption if you:
- Buy a residential house 1 year before or 2 years after sale
- Or construct a house within 3 years of sale
- Invest capital gains amount (no limit on property value)
- Don't sell new house for 3 years
Exemption on investment in:
- NHAI (National Highways Authority) bonds
- REC (Rural Electrification Corporation) bonds
- Max ₹50LMaximum investment limit
- 5 YearsLock-in period
- ~5.25% p.a.Interest rate
If you sell land/plot (not a house):
- Invest entire sale proceeds (not just gains)
- Buy one residential house property
- Should not own more than one house on sale date
Can't find property immediately?
- Deposit capital gains in CGAS account
- Use it later to buy/construct property
- Maintains eligibility for exemption
Calculation Example
Complete Tax Calculation
Sale Price: ₹1,50,00,000
Less: Transfer expenses: ₹1,00,000
Net Sale: ₹1,49,00,000
Purchase Price (2010): ₹30,00,000
Indexed Cost (CII 363/167): ₹65,33,000
Improvement Cost (2018): ₹5,00,000
Indexed Improvement (CII 363/280): ₹6,48,000
Total Indexed Cost: ₹71,81,000
LTCG: ₹77,19,000
Tax @ 20%: ₹15,43,800
Important Points
Multiple Owners
Each co-owner can claim exemption separately based on their share
Inherited Property
Holding period includes previous owner's period. Use original purchase date for indexation
Gift Property
Similar to inherited property for tax calculation purposes
Conclusion
Proper planning before selling property can save you lakhs in taxes. Consider indexation benefits, evaluate reinvestment options under Section 54/54EC/54F, and always maintain proper documentation.
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