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."
Hi Srikanth ,
My father purchased a plot in 1980 wants to sell for me for a nominal value for eg 1 lac ,can he do so
Question
1) Is selling of nominal value is valid or not both as pe IT Act and as per Law (Stamp duty will be paid on 10.Lacs but sale consideration is 1.00 Lac)
2) Is my father do require to pay LTCG on this 1 lac or Market price say for eg 10 Lacs.
3) If consideration of 1Lac is valid ,While calculating LTCG on 1.00 can we take consider /deduction of Cost of index , cost of improvement and cost of sale
4) We don’t want to do this transaction with gift deed to avoid litigations
Thanks in advance
Regards
B.MS
Dear Mohan,
You can acquire the property by paying nominal value only.
However, as per section 50C of the income-tax Act, while computing capital gain arising on transfer of property, if the actual sale consideration is lesser than the stamp duty value (guidance value or minimum registration value as per govt), then the stamp duty value is taken as the deemed selling price and capital gain will be computed accordingly.
Kindly read : 5 ways of transferring real estate property!
Thanks for your reply
while calculating ltcg on market value ,can I deduct cost of sale and indexation
please reply
Regards
B.Ms
I believe, yes you can deduct..
sir.
My father build a house on 1993 in the name of my mother. Heard from him it costs 8-9 lakhs . My father died 5 years back. Now if my mother want to sale the house , how to show the cost at that time(9 lakh). No bill or any other parer left only cost of land from deed remain because that was 24 years ago. If dont show the cost how to calculate LTCG.
please suggest...
Dear Raju,
You may take help of a Govt approved Valuation Officer to assess the cost of construction..
thanks sir....
Hi Sree,
Nice Article!!
Query:
I have sold our NA plot at price Rs 1000000 on Date 16th jan 2017 which is purchased in 1990 (5000 Rs). Please suggest to exempt LTCG Tax.No plan to buy any other house/plot this year. Where should I invest to avoid LTCG :(
Waiting for your kind suggestion.
Dear Gajanan,
Kindly go through the above points..You may consider Sec 54EC bonds or Capital gain account scheme..
Hi,
Thanks for the detailed information regarding capital gain tax.
I am NRI and about to sell my apartment for 50 lacs. LTCG will be applicable on 20 lacs.
I would like to transfer 30 lacs to UK and buy new apartment in India of 20 lacs. Would I have to pay any CG this way?
Dear DEVANG,
Assuming the Registration value would be Ra 50 Lakh, this should be ok.
Do consult a CA regarding this matter.
Hello
If I want to build a new house by utilizing LTCG earned through selling of a paternal property on a previously owned plot (in 2003),what r the rules,and can I do that for tax exemptions.i hv already opened capital gain account.
Dear Abhishek,
Kindly go through the points given under the title 'How to Save Long Term Capital Gains Tax without buying another House Property?' in the above article.
Hi,
My Father in Law had an ancestral plot in Rohtak which his father bought in 1957. My father in Law doesn't know it's purchase price and has sold that plot @10.5 Lacs in October'16.
He wish to invest the amount in buying a flat in his and my wife's joint name.
My question is:
a) How much would be the exact LTCG on the plot acquired. (Please calculate and let me know)
b) Will the LTCG be exempted if he buys the flat?
Waiting for a quick reply.
Thanks in advance for your reply.
Dear Anuj,
a - Kindly consult a CA for calculation purposes.
b - As he is planning to buy in joint name, the extent of exemption on LTCG is up to his ownership share in the new property.
Dear ,
My mom bought a land for Rs. 20,50,000 / - and sold it for 22,00,000/- within 2 years which means STCG. So how much is the taxable income on this.
Dear Valli,
Kindly note that Short Term Capital Gains have to be included in her taxable income and taxed at applicable income tax slab rates.
Hi Sreekanth,
I bought a flat in May 2013 which is still under construction. I hope that I'll get the possession by Dec-2017. :)
1.) Now if I want to sell the flat before taking the possession, what are the tax implications? As I won't be able to register the property. Do we count the time from the date I booked the property to the date I sell it or the duration gets started only once someone register the property on his name? I understand I need to pay the transfer charges to the builder.
2.) What will be the tax implication if I sell the property just after getting the possession but before getting the registry done? I understand I need to pay the transfer charges to the builder.
3.) I am not expecting to make any capital gain if I sell this flat within next one year. Now what all comes under capital loss? Whatever I paid to builder like BSP, Car Parking, Power backup etc. OR I can also show the interest paid to bank so far as capital loss? and yes indexation would be there if the clock started from May 2013.
Dear Tarun,
1 - If you are planning to sell the flat before the registration/possession, the date on which you have signed the Purchase agreement is considered for calculation of capital gains, in this case it is Long term CG (booking date May 2013).
2 - I believe that your builder might insist on registration to be done, before giving you a possession certificate., if you are selling the flat after taking possession of the flat, the period of three years (for long term capital gain calculation) starts from the date of taking possession of the flat.
3 - Depending on Short term capital loss or Long term CL, you can set-off the losses.
"Loss from transfer of a short term Capital Asset can be set off against gain from transfer of any other capital asset (Long Term or Short Term) in the same year."
"Loss from transfer of a Long term Capital Asset can be set off against gain from transfer of any other long term Capital Asset in the same year."
If there is still loss it can be carried forward to next assessment year. In the next year, the STCL can be set off against any gains from transfer of any capital asset (Long term or Short term) and the LTCL can be set off against gains from transfer of long term capital asset only. Any un-absorbed loss after such set off can be further carried forward to next assessment year. A loss for a particular year can be carried forward only if the income tax return for that year is filed by the due date. Capital loss computed in an assessment year can be carried forward for eight assessment years and set off as above.
(Courtesy : bemoneyaware.com)
Hi,
My father has sold an ancestral property. So it is a LTCG. Can the amount be used for renovation of existing property on his name?
Dear suc ..I believe no such provision is available to claim exemption on LTCG.
Dear Sir,
My father having one residential house which was bought in 1985. now we area selling it in 2017 and LTCG comes to Rs. 3.76 lacs. We have done some amendments to our home in 1995-1996 of around rs 2 lac but all transactions were in cash and no bills were opted as improvements are done through local contractor.
Is it possible to deduct house improvement indexed and deducted from sale value without proof of bills or payment proofs.
Dear devdutt,
If there is any notice from the IT dept, it can be a tough task to justify your calculations.
View Comments
Hi Srikanth ,
My father purchased a plot in 1980 wants to sell for me for a nominal value for eg 1 lac ,can he do so
Question
1) Is selling of nominal value is valid or not both as pe IT Act and as per Law (Stamp duty will be paid on 10.Lacs but sale consideration is 1.00 Lac)
2) Is my father do require to pay LTCG on this 1 lac or Market price say for eg 10 Lacs.
3) If consideration of 1Lac is valid ,While calculating LTCG on 1.00 can we take consider /deduction of Cost of index , cost of improvement and cost of sale
4) We don’t want to do this transaction with gift deed to avoid litigations
Thanks in advance
Regards
B.MS
Dear Mohan,
You can acquire the property by paying nominal value only.
However, as per section 50C of the income-tax Act, while computing capital gain arising on transfer of property, if the actual sale consideration is lesser than the stamp duty value (guidance value or minimum registration value as per govt), then the stamp duty value is taken as the deemed selling price and capital gain will be computed accordingly.
Kindly read : 5 ways of transferring real estate property!
Thanks for your reply
while calculating ltcg on market value ,can I deduct cost of sale and indexation
please reply
Regards
B.Ms
I believe, yes you can deduct..
sir.
My father build a house on 1993 in the name of my mother. Heard from him it costs 8-9 lakhs . My father died 5 years back. Now if my mother want to sale the house , how to show the cost at that time(9 lakh). No bill or any other parer left only cost of land from deed remain because that was 24 years ago. If dont show the cost how to calculate LTCG.
please suggest...
Dear Raju,
You may take help of a Govt approved Valuation Officer to assess the cost of construction..
thanks sir....
Hi Sree,
Nice Article!!
Query:
I have sold our NA plot at price Rs 1000000 on Date 16th jan 2017 which is purchased in 1990 (5000 Rs). Please suggest to exempt LTCG Tax.No plan to buy any other house/plot this year. Where should I invest to avoid LTCG :(
Waiting for your kind suggestion.
Dear Gajanan,
Kindly go through the above points..You may consider Sec 54EC bonds or Capital gain account scheme..
Hi,
Thanks for the detailed information regarding capital gain tax.
I am NRI and about to sell my apartment for 50 lacs. LTCG will be applicable on 20 lacs.
I would like to transfer 30 lacs to UK and buy new apartment in India of 20 lacs. Would I have to pay any CG this way?
Dear DEVANG,
Assuming the Registration value would be Ra 50 Lakh, this should be ok.
Do consult a CA regarding this matter.
Hello
If I want to build a new house by utilizing LTCG earned through selling of a paternal property on a previously owned plot (in 2003),what r the rules,and can I do that for tax exemptions.i hv already opened capital gain account.
Dear Abhishek,
Kindly go through the points given under the title 'How to Save Long Term Capital Gains Tax without buying another House Property?' in the above article.
Hi,
My Father in Law had an ancestral plot in Rohtak which his father bought in 1957. My father in Law doesn't know it's purchase price and has sold that plot @10.5 Lacs in October'16.
He wish to invest the amount in buying a flat in his and my wife's joint name.
My question is:
a) How much would be the exact LTCG on the plot acquired. (Please calculate and let me know)
b) Will the LTCG be exempted if he buys the flat?
Waiting for a quick reply.
Thanks in advance for your reply.
Dear Anuj,
a - Kindly consult a CA for calculation purposes.
b - As he is planning to buy in joint name, the extent of exemption on LTCG is up to his ownership share in the new property.
Dear ,
My mom bought a land for Rs. 20,50,000 / - and sold it for 22,00,000/- within 2 years which means STCG. So how much is the taxable income on this.
Dear Valli,
Kindly note that Short Term Capital Gains have to be included in her taxable income and taxed at applicable income tax slab rates.
Hi Sreekanth,
I bought a flat in May 2013 which is still under construction. I hope that I'll get the possession by Dec-2017. :)
1.) Now if I want to sell the flat before taking the possession, what are the tax implications? As I won't be able to register the property. Do we count the time from the date I booked the property to the date I sell it or the duration gets started only once someone register the property on his name? I understand I need to pay the transfer charges to the builder.
2.) What will be the tax implication if I sell the property just after getting the possession but before getting the registry done? I understand I need to pay the transfer charges to the builder.
3.) I am not expecting to make any capital gain if I sell this flat within next one year. Now what all comes under capital loss? Whatever I paid to builder like BSP, Car Parking, Power backup etc. OR I can also show the interest paid to bank so far as capital loss? and yes indexation would be there if the clock started from May 2013.
Dear Tarun,
1 - If you are planning to sell the flat before the registration/possession, the date on which you have signed the Purchase agreement is considered for calculation of capital gains, in this case it is Long term CG (booking date May 2013).
2 - I believe that your builder might insist on registration to be done, before giving you a possession certificate., if you are selling the flat after taking possession of the flat, the period of three years (for long term capital gain calculation) starts from the date of taking possession of the flat.
3 - Depending on Short term capital loss or Long term CL, you can set-off the losses.
"Loss from transfer of a short term Capital Asset can be set off against gain from transfer of any other capital asset (Long Term or Short Term) in the same year."
"Loss from transfer of a Long term Capital Asset can be set off against gain from transfer of any other long term Capital Asset in the same year."
If there is still loss it can be carried forward to next assessment year. In the next year, the STCL can be set off against any gains from transfer of any capital asset (Long term or Short term) and the LTCL can be set off against gains from transfer of long term capital asset only. Any un-absorbed loss after such set off can be further carried forward to next assessment year. A loss for a particular year can be carried forward only if the income tax return for that year is filed by the due date. Capital loss computed in an assessment year can be carried forward for eight assessment years and set off as above.
(Courtesy : bemoneyaware.com)
Hi,
My father has sold an ancestral property. So it is a LTCG. Can the amount be used for renovation of existing property on his name?
Dear suc ..I believe no such provision is available to claim exemption on LTCG.
Dear Sir,
My father having one residential house which was bought in 1985. now we area selling it in 2017 and LTCG comes to Rs. 3.76 lacs. We have done some amendments to our home in 1995-1996 of around rs 2 lac but all transactions were in cash and no bills were opted as improvements are done through local contractor.
Is it possible to deduct house improvement indexed and deducted from sale value without proof of bills or payment proofs.
Dear devdutt,
If there is any notice from the IT dept, it can be a tough task to justify your calculations.