How to save Capital Gains Tax on Sale of Land / House Property?
Capital assettypically refers to anything that you own for personal or investment purposes. It includes all kinds of property; movable or immovable, tangible or intangible, fixed or circulating.
Examples include a house, land, household furnishings, stocks, bonds or mutual funds held as investments etc.,
When you sell a capital asset, the difference between the purchase price of the asset and the amount you sell it for is a capital gain or a capital loss. Capital gains and losses are classified as long-term or short-term.
If Land or house property is held for 36 months or less24 months or less(w.e.f. FY 2017-18)then that Asset is treated as Short Term Capital Asset. You as an investor will make either Short Term Capital Gain (STCG) or Short Term Capital Loss (STCL)on that investment.
If Land or house property is held for more than 36 monthsmore than 24 months(w.e.f FY 2017-18 / AY 2018-19) then that Asset is treated as Long Term Capital Asset. You will make either Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL) on that investment.
You may have to pay Capital Gains Tax on STCG / LTCG.
In this post let us understand – How to calculate Short Term capital gains on sale of land or property? How to calculate Long Term Capital Gains on sale of land or house? What are the applicable capital gain tax rates on sale of land / house property? How to avoid / save / minimize capital gains tax on sale of land or flat?
How to calculate Capital Gains on sale of Land or House property?
Short Term Capital Gains Calculation is calculated as below:
STCG = Total Sale Price – Cost of acquisition – expenses directly related to sale – cost of improvements.
Long Term Capital Gains Calculation;
The LTCG calculation is similar to STCG. The only differences are, you are allowed to deduct Indexed Cost of Acquisition/Indexed Cost of Improvements from the sale price and also claim certain exemptions to save capital gains tax.
With effective from Financial Year 2017-18, the base year for calculation of Indexation is going to be 2001.
(Indexation is done by applying CII – cost inflation index. This increases your cost base ie purchase price and lowers your gains. Your purchase price is adjusted for the impact of inflation.
How do you calculate the indexed cost of purchase? The indexed cost is calculated with the help of a table of cost inflation index.
Divide the cost at which you purchased the Property by the index as on the date of the purchase. Multiply this by the index as on the date of sale.
For Example : If purchase year is 2011 and year of sale is in Financial Year 2015. Then indexed cost of purchase would be –
Below is the Cost Inflation Index Table from 2001-02 to FY 2020-21 for your reference. Cost Inflation Index (CII) for FY 2020-21/ AY 2021-22 Notified by CBDT at 280.
What are the applicable Capital Gains Tax Rates on Sale of Property AY 2021-22?
Short Term Capital Gains are included in your taxable income and taxed at applicable income tax slab rates.
Long Term Capital Gains are taxed at 20%.
How do I save Capital Gains Tax from sale of Property?
Capital gains tax on Short term gains is unavoidable and no exemptions are available to minimize your tax liability. However, you can claim deductions to lower the tax liability on long-term gains.
How to save Capital Gains Tax by claiming Exemption u/s Section 54EC? (Applicable to LTCG only, on sale of both land / house property / commercial property)
Capital gains from sale of any long-term asset can be claimed as tax-exempt under Section 54EC of the Income-Tax Act by investing in notified bonds within six months of the transfer of Asset.
These bonds are issued by the Rural Electrification Corporation and the National Highways Authority of India.
The exemption is equal to the investment or the capital gain, whichever is lower. If you transfer or take a loan against these bonds within three years, the capital gain will become taxable.
These are redeemable after 3 years and must not be sold before the lapse of 3 years from the date of sale of the house property. The Bonds issued u/s 54EC for saving of LTCG on sale of property will now have a lock-in period of 5 years instead of 3 years from FY 2018-19.
You are allowed a period of 6 months to invest in these bonds, but before the Income Tax Return filing date (to claim this exemption).
You can invest a maximum of Rs 50 lakhduring a financial year in these bonds as per Budget 2015-16.
How to save Capital Gains Tax by claiming Exemption u/s Section 54? (Applicable to LTCG on sale of house property only)
You can use the entire Long Term Capital Gain proceeds on sale of a residential house to buy another house property (residential property) to save Capital Gains tax. Below conditions need to be satisfied though;
The new house has to be bought one year before(under-construction property) the transfer of the first house or within two years after the sale. (For an Under construction property or flat , the construction has to be completed within three years of the transfer of the first property.)
The deduction allowed is equal to the actual investment or the capital gain, whichever is lower.
If you plan to use the gain to build a house, it has to be done within three years of the sale of the property. Do note that ‘cost of land’ can be included in the construction cost.
How to save Capital Gains Tax u/s 54F?(Conditions applicable to LTCG on sale of Land or Commercial Property)
Below conditions need to be satisfied in case you sell land and are planning to buy a residential home.
You can use the entire sale proceeds (received by selling a plot / land) to buy a new house or to build a new residential house.
If you use a part of the money, the deduction will be proportion of the invested amount to the sale price.
The time-frame for investment is the same as that for capital gains from residential property.
You should not own more than one residential house prior to this investment.
The deducted capital gain (from sale of land) becomes taxable if you buy another house (other than the new one) within two years of the transfer of the original asset or construct a new one within three years.
If the new house is sold within three years, the deduction claimed will become taxable as a long-term gain.
This new house purchased or constructed must be situated in India.
The proceeds should not be invested in a commercial propertyor in another vacant plot.
How to Save Long Term Capital Gains Tax without buying another House Property?
If you are unable to invest the sale proceeds in any of the above options before the date of income tax returns filing , you can deposit the CAPITAL GAINS (not entire sale proceeds) amount in a public sector bank or other banks as per the Capital Gains Account Scheme- CGAS, 1988.
The capital gain (full amount or utilized amount)can be deposited in CGAS account.
This is only a stop-gap arrangement, as the funds have to be used to buy or build a house within the period specified.
The deposited money can be used only to buy or construct a residential house within the prescribed time frame.
If you withdraw funds from this account, they have to be used within 60 days.
If you do not utilize the amount within three years of the sale of the first property, such un-utilized amount will be treated as LTCG this will lead to taxation of the unutilized amount as long-term capital gain after three years of the sale of the first / original property.
The interest rates paid on these accounts are the same as those on regular savings and term deposits. Kindly note that interest earned on this account is taxable.
How to Save Long Term Capital Gains Tax under New Section 54GB(5)?
Under Section 54GB(5) of the Income Tax Act, 1961, long term capital gains on the sale of residential property will be exempt if the sale proceeds are invested in a eligible startup, provided such transfer took place prior to March 31, 2019. As per the latest full Budget 2019-20, this has now been extended to March 2021.
Important points on Capital Gains Tax & Sale of Land / Home
Agricultural land in a rural area in India it is not considered a Capital Asset, and therefore no capital gains are applicable on its sale.
While calculating capital gains, expenses related to transfer / sale like advertisement expenses, brokerage expense, Stamp duty, Sale deed registration fees, Legal (lawyer) expenses etc., can be deducted from the Purchase price.
Sale of a property that is inherited or accepted as a gift will also attract capital gain/loss provisions even though you haven’t spent any money to acquire it. In such a case, capital gains will be computed on the basis of the cost to the previous owner, indexed to the year of purchase.
If the cost of the new residential property is lower than the total sale amount, then the exemption is allowed proportionately.
The new property must only be bought on the name of the seller and not on anybody else’s name. Joint ownership can be acceptable but exemption can be limited to the share of ownership.
You must also remember that you are allowed to purchase or construct only one new asset from the capital gain that accrues. This means that you cannot make multiple property acquisitionsand thus seek to reduce your tax outgo. However, if you sell more than one property, you can invest the resulting cumulative capital gain amount in a single new property.
If you use the capital gain amount to clear loansthen tax on LTCG cannot be saved. No exemptions can be claimed.
Capital Gain Tax cannot be saved if the sale proceeds are invested in a commercial property, agricultural land or plot.
According to the latest amendments in the Income Tax Act, the residential property which is bought by re-investing the long-term capital gains must be situated in India.If you would like to buy a property outside India say in the US, you need to pay tax on the capital gain portion of the sale proceeds.
Categorize your capital gains i.e., Short term or Long term.
Calculate Short Term Capital Gains (STCG) / Long Term Capital Gains (LTCG).
If you have STCG, taxes are payable as per your income tax slab rate.
If you have LTCG, to save capital gains tax ;
You may invest the gains in another Residential property (or)
Buy Notified Bonds (or)
Temporarily invest in Capital Gains Account Schemes.
Else, you have to pay 20% on your Long Term Capital Gains.
Calculation of Capital Gains Tax on sale of property can be sometimes be a tricky one. It is advisable to exercise caution when claiming Capital Gains Tax Exemptions. When in doubt, kindly consult a tax expert or a Chartered Accountant.
(Image courtesy of Stuart Miles at FreeDigitalPhotos.net)
This post was last modified on September 28, 2023 6:32 pm
Sreekanth Reddy
Sreekanth is the Man behind ReLakhs.com. He is an Independent Certified Financial Planner (CFP), engaged in blogging & property consultancy for the last 14 years through his firm ReLakhs Financial Services . He is not associated with any Financial product / service provider. The main aim of his blog is to "help investors take informed financial decisions." "Please note that the views given in this Blog/Comments Section/Forum are clarifications meant for reference and guidance of the readers to explore further on the topics/queries raised and take informed decisions. The information provided, therefore, should not be viewed as financial, legal, accounting, tax or investment advice."
Dear Sir,
i had purchased a plot on 30th april 1981 for Rs.13413 now i had sold it on 21st march 2017 for Rs.40,57,000/- against that sale i want to purchase another plot of similar amount do i have to pay capital gain tax?
Dear vibhor,
The proceeds can not be invested in a commercial property or in another vacant plot for claiming tax exemption.
However, if one is planning to construct the house on the newly acquired plot within 3 years after sale of asset then can claim tax exemption u/s 54F.
thanks for the information but please tell if we construct a commercial building on the newly acquired plot still we can claim tax exemption u/s 54F ?????
No, dear vibhor .. Tax exemption is not available if the property is a non-residential one.
kindly pardon me. My question is :-
I want to sell the house and
the proceedings are to be kept under LTCG A/C.
I do not want to Purchase and/or Construct a House,
with in the specified period of 2/3 years as the
case may be.
After expiry of three (3) years,
can I utilise the entire amount earmarked as LTCG,
as I please, without any Tax Deduction.
If not, what are the ways left behind to go in
for without Tax Deduction.
Dear Sarma ,
If you do not utilize the amount within three years of the sale of the first property, such un-utilized amount will be treated as LTCG this will lead to taxation of the unutilized amount as long-term capital gain after three years of the sale of the first / original property.
For other options, you may kindly go through the above article.
Dear Sir,
I am planning to purchase a new residential plot by selling one of my old converted plot (7 years old).
I own a flat where I live currently and have invested into another flat which is under construction (not yet registered) but bank loan has already started.
My question is whether I can use the money I get by selling my old plot to purchase the new residential plot.
Will I be exempted on Long term capital gain?
If not then what are the options allowed to save the tax?
I may plan to construct a house in the new residential plot in near future.
Please advice.
Thanks and Regards,
Vishu
Dear Vishu,
The proceeds can not be invested in a commercial property or in another vacant plot for claiming tax exemption.
However, if one is planning to construct the house on the newly acquired plot within 3 years after sale of asset then can claim tax exemption u/s 54F.
But in your case, as you are own more than one residential property, you can not claim tax exemption u/s 54F.
Suppose, if I put all proceeds in Capital Gain A/C , then after how long this total amount become Tax Free.
Dear Mr Sarma ..Kindly go through points under the section 'How to Save Long Term Capital Gains Tax without buying another House Property?
'.
Can an assessee purchased house from his wife to save capital gain tax
Dear VIJENDER ..Kindly elaborate your query with more details..
Dear Sir,
I am Sanjay, I have purchased a residential land plot in the name of my mother-in-law, because I along with my family was out of India. Now I want to sell that land plot and intend to buy an apartment with that sale proceed and some housing loan. Shall I be able to avail the LTCG benefit from this sale deed.
Kindly reply.
Regards,
Sanjay
Dear sanjay .. Exemption on LTCG taxes can be claimed by your mother in law only, if she reinvests the sale-proceeds / Capital gains in new property (as the property is in her name).
Thank you so much Sir.
If I use the sale proceeds of above plot for purchasing an apartment, will there be any complication for filing ITR, for me and my mother in-law (a housewife).
Regards,
Sanjay
Dear sanjay ..As the property is not in your name, any tax implications has to borne by your mother in law only.
Thank you so much Sir.
If possible, please let me know.
If my mother-in law gives the sale proceeds to me for buying an apartment, do I or my mother in law will have to pay tax, STCG or LTCG or something else.
Kind regards,
Sanjay
Dear sanjay ..Yes, your mother in law has to pay taxes on Capital gains (if any).
Thanks Sir.
If i get it done re-registered (sale deed or gift deed) in my or my wife's name, then how much time we have to wait for LTCG benefits.
Kind regards,
Sanjay
Hi Sir, Recently I sold my property for 33L now I wolud like to plan plan agricultural farm is this amount exempted from tax
Dear Bhanu..Kindly note that Capital Gain Tax cannot be saved if the sale proceeds are invested in a commercial property / agricultural land
Thank you for your reply sir, then how can I avoid the tax please suggest me in this process sir
Dear bhanu ..Kindly go through the options mentioned in the above article..
hi,
I have purchased plot with the name of my younger brother with value of 3.43L and plus registration charges before 3 Years. he is not earning yet (studying).
I am working in private sector and i like to purchase flat in metro city. if he will sale this plot up to 7L how much amount will be taxable to him? can he save tax ? or to utilize full amount to purchase the flat for me.
or is that correct option, transferring ownership of plot and utilize the fund withing month for purchasing flat for me.
Dear Nitin,
The extent of tax amount depends on his share in the Capital Gains.
You can not utilize his share of Long term Capital gains to buy a property in your name.
Hello,
I just gave my property to a builder for promoting. I will be getting flat in the new building. The promoter gave 6Lakh rupees as part of the exchange also. Now how can this amount be invested to save the LTCG tax exemption. This amount is also so minimal that investing on another residential property is getting difficult. Please assist.
Dear Abhijit ..I am not sure on this ..Kindly take advice from a CA.
Good morning Sreekanth,
I'm selling my house and the deed of sale will be registered on 27 April 2017.
So from that date, I will no longer owner.
My question is who should pay the property tax 2017/2018? Is it me before I leave my house? Or the new owner.
If entire tax is paid before 30th April, I will earn a rebate of 5% on my incurred tax amount.
Thank you for your answer.
Dear Lambert,
It all can be mutually agreed and can be included in the sale price.
You may ask the new owner to bear it as you are the owner for just one month in this FY.
Good morning Sreekanth,
How long would it take to pay the LTCG taxes after the sale of the house? Would it be possible to deposit the money in the bank for a very short time until the deadline for payment of LTCG taxes?
Taxes will of course be paid on time to avoid penalties.
Thank you for your reply
Dear LAMBERT ..Yes, you may do so. Kindly note that any interest income generated on depositing this money in a Savings Bank account can also be taxable.
Thank you very much Sreekanth for your quick reply. But you forgot to tell me the payment time limit for LTCG Tax. Within six months or one year from the date of signing of the deed sale? Thanks
Dear LAMBERT ..You can pay the taxes when filing your Income Tax Return.
OK THANKS Sreekanth, but you don't telll me the payment time limit for LTCG Tax. Within six months or one year from the date of signing of the deed sale?
A friend told me to pay taxes within a period of six months from the signing of the deed-sale. If the time is exceeded there is to pay penalties.
Thank you for your response
View Comments
Dear Sir,
i had purchased a plot on 30th april 1981 for Rs.13413 now i had sold it on 21st march 2017 for Rs.40,57,000/- against that sale i want to purchase another plot of similar amount do i have to pay capital gain tax?
Dear vibhor,
The proceeds can not be invested in a commercial property or in another vacant plot for claiming tax exemption.
However, if one is planning to construct the house on the newly acquired plot within 3 years after sale of asset then can claim tax exemption u/s 54F.
thanks for the information but please tell if we construct a commercial building on the newly acquired plot still we can claim tax exemption u/s 54F ?????
No, dear vibhor .. Tax exemption is not available if the property is a non-residential one.
kindly pardon me. My question is :-
I want to sell the house and
the proceedings are to be kept under LTCG A/C.
I do not want to Purchase and/or Construct a House,
with in the specified period of 2/3 years as the
case may be.
After expiry of three (3) years,
can I utilise the entire amount earmarked as LTCG,
as I please, without any Tax Deduction.
If not, what are the ways left behind to go in
for without Tax Deduction.
Dear Sarma ,
If you do not utilize the amount within three years of the sale of the first property, such un-utilized amount will be treated as LTCG this will lead to taxation of the unutilized amount as long-term capital gain after three years of the sale of the first / original property.
For other options, you may kindly go through the above article.
Dear Sir,
I am planning to purchase a new residential plot by selling one of my old converted plot (7 years old).
I own a flat where I live currently and have invested into another flat which is under construction (not yet registered) but bank loan has already started.
My question is whether I can use the money I get by selling my old plot to purchase the new residential plot.
Will I be exempted on Long term capital gain?
If not then what are the options allowed to save the tax?
I may plan to construct a house in the new residential plot in near future.
Please advice.
Thanks and Regards,
Vishu
Dear Vishu,
The proceeds can not be invested in a commercial property or in another vacant plot for claiming tax exemption.
However, if one is planning to construct the house on the newly acquired plot within 3 years after sale of asset then can claim tax exemption u/s 54F.
But in your case, as you are own more than one residential property, you can not claim tax exemption u/s 54F.
Suppose, if I put all proceeds in Capital Gain A/C , then after how long this total amount become Tax Free.
Dear Mr Sarma ..Kindly go through points under the section 'How to Save Long Term Capital Gains Tax without buying another House Property?
'.
Can an assessee purchased house from his wife to save capital gain tax
Dear VIJENDER ..Kindly elaborate your query with more details..
Dear Sir,
I am Sanjay, I have purchased a residential land plot in the name of my mother-in-law, because I along with my family was out of India. Now I want to sell that land plot and intend to buy an apartment with that sale proceed and some housing loan. Shall I be able to avail the LTCG benefit from this sale deed.
Kindly reply.
Regards,
Sanjay
Dear sanjay .. Exemption on LTCG taxes can be claimed by your mother in law only, if she reinvests the sale-proceeds / Capital gains in new property (as the property is in her name).
Thank you so much Sir.
If I use the sale proceeds of above plot for purchasing an apartment, will there be any complication for filing ITR, for me and my mother in-law (a housewife).
Regards,
Sanjay
Dear sanjay ..As the property is not in your name, any tax implications has to borne by your mother in law only.
Thank you so much Sir.
If possible, please let me know.
If my mother-in law gives the sale proceeds to me for buying an apartment, do I or my mother in law will have to pay tax, STCG or LTCG or something else.
Kind regards,
Sanjay
Dear sanjay ..Yes, your mother in law has to pay taxes on Capital gains (if any).
Thanks Sir.
If i get it done re-registered (sale deed or gift deed) in my or my wife's name, then how much time we have to wait for LTCG benefits.
Kind regards,
Sanjay
Hi Sir, Recently I sold my property for 33L now I wolud like to plan plan agricultural farm is this amount exempted from tax
Dear Bhanu..Kindly note that Capital Gain Tax cannot be saved if the sale proceeds are invested in a commercial property / agricultural land
Thank you for your reply sir, then how can I avoid the tax please suggest me in this process sir
Dear bhanu ..Kindly go through the options mentioned in the above article..
hi,
I have purchased plot with the name of my younger brother with value of 3.43L and plus registration charges before 3 Years. he is not earning yet (studying).
I am working in private sector and i like to purchase flat in metro city. if he will sale this plot up to 7L how much amount will be taxable to him? can he save tax ? or to utilize full amount to purchase the flat for me.
or is that correct option, transferring ownership of plot and utilize the fund withing month for purchasing flat for me.
Dear Nitin,
The extent of tax amount depends on his share in the Capital Gains.
You can not utilize his share of Long term Capital gains to buy a property in your name.
Hello,
I just gave my property to a builder for promoting. I will be getting flat in the new building. The promoter gave 6Lakh rupees as part of the exchange also. Now how can this amount be invested to save the LTCG tax exemption. This amount is also so minimal that investing on another residential property is getting difficult. Please assist.
Dear Abhijit ..I am not sure on this ..Kindly take advice from a CA.
Good morning Sreekanth,
I'm selling my house and the deed of sale will be registered on 27 April 2017.
So from that date, I will no longer owner.
My question is who should pay the property tax 2017/2018? Is it me before I leave my house? Or the new owner.
If entire tax is paid before 30th April, I will earn a rebate of 5% on my incurred tax amount.
Thank you for your answer.
Dear Lambert,
It all can be mutually agreed and can be included in the sale price.
You may ask the new owner to bear it as you are the owner for just one month in this FY.
Good morning Sreekanth,
How long would it take to pay the LTCG taxes after the sale of the house? Would it be possible to deposit the money in the bank for a very short time until the deadline for payment of LTCG taxes?
Taxes will of course be paid on time to avoid penalties.
Thank you for your reply
Dear LAMBERT ..Yes, you may do so. Kindly note that any interest income generated on depositing this money in a Savings Bank account can also be taxable.
Thank you very much Sreekanth for your quick reply. But you forgot to tell me the payment time limit for LTCG Tax. Within six months or one year from the date of signing of the deed sale? Thanks
Dear LAMBERT ..You can pay the taxes when filing your Income Tax Return.
OK THANKS Sreekanth, but you don't telll me the payment time limit for LTCG Tax. Within six months or one year from the date of signing of the deed sale?
A friend told me to pay taxes within a period of six months from the signing of the deed-sale. If the time is exceeded there is to pay penalties.
Thank you for your response