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 Sreekanth, I going to sell my plot on 20th November 2016 for 35 lakhs(Registration value 5.75 lakhs) which I had purchased in October 2014 for 30 lakhs (Registration value 5.75 lakhs). Please advise me while opening STCG, do we need to submit old registration document and new registration documents to bank? Why I am asking is, If we submit the documents, there is no profit on plot. or direct we can deposit 35 lakhs? please advise.
Dear srinivas ..Considering what is happening with black-money cases, do you think that it is wise to have accept such huge amount as accounted money? Isn't it going to be tough to convert that money to white?
If you have to deposit Rs 35 Lakh in bank, they may ask you the source of income for this transaction? In such a case it is difficult for you to justify your stand.
Dear Sir,
I have sold on nov 2016 my residential plot for 26.5 lakhs which I had purchased in oct 2010 for 10.5 lakh. Now I am going to purchase a new residential plot for 23.5 lakh on 30 Nov 2016. Please suggest what will be my LTCG and how to save tax on it.
Regards
Dear Vikas,
You have two options ie Bonds u/s 54EC or can invest the amount in CGAS to save your LTCG on sale of plot. But if you invest the proceeds only in plot then is no provision to save taxes on LTCG.
I purchased a flat for 3 lakhs and after 15 years I sold it for 22 lakhs. With that capital gain amount and some more from my pocket I purchased a PLOT of 40 lakhs. Will I be taxed if I do not construct a house within 2 years ? If not, then how many years can I take for constructing a house without getting taxed. I do not have any bank loans and I do not want to take any loans. Thanks.
Dear Sohail,
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.
Hello Sreekanth,
I am a single lady of 50 years living in a rented house and my father who passed away in 2013 left his apartment to me and also a 40% portion of a residential plot of land for me and 60% for my brother.
The land and flat were bought before 1984. The flat was bought for approximately 5 lakhs back then and is quoted at 4.5 crores now. I have no intention of selling the land right now but I want to sell the flat and buy an independent house for about 3.5 crores in another town or city within two years and keep some of the sale money aside, say 1 crore for investment in FDs or mutual funds and to meet some expenses. Could you please tell me what would I have to pay as tax for this sale. Will the buyer deduct TDS and if so how much and can I claim it back as my income is below 5 lakh a year? Any suggestions are welcome.
Thanks.
Dear Deniese Ji,
The buyer has to deduct 1% as TDS on the Registered Sale value of the property. Yes, you can claim it back when filing your Income tax return.
Yes, you can use the entire Long Term Capital Gain proceeds on sale of a residential house (Flat) to buy another house property (residential property) to save Capital Gains tax.
You may this calculator to find out approx LTCG on sale of Flat.
i have purchased a land of Rs 1000000 in the year 2005 & sold the land in the year 2016 for Rs 2500000 is it taxable or not and how to save the tax
Dear ajay ..Tax on LTCG is applicable.
To save taxes - kindly refer to the points given in the above article.
Hello,
I want to know about the capital gains tax effect in my following case.
In 2008 my mother and I sold our individual plots. Out of the combined proceeds we constructed a single bungalow in the same year. Due to funds deficiency, we had to take a loan in my wife's name. So we registered this new bungalow in the joint ownership of myself (i.e. son) and my wife (i.e. daughter-in-law). My mother's plot sale proceeds are invested in this bungalow, but her name in not in the registry. My mother resides with us only. Can you please guide me w.r.t. to the capital gains tax in the hands of my mother.
Regards
Dear Yogesh,
You may treat the amount given by your mother as Gift, which is tax-exempt.
Did she pay taxes on sale of plot in 2008?
Hello,
Thanks for the reply.
My mother did not pay any taxes on sale of plot. I want to know if she is liable to pay any capital gains tax, even though entire sale proceeds are reinvested in my (i.e. son's) bungalow?
Dear Yogesh,
Had she gifted the Plot to you and if you had sold it then onus of paying capital gain taxes (if any) would have been on you.
She had sold it - so capital gains (if any) should have been paid by your mother. After the sale transaction, she has gifted/invested in the bungalow.
Hi ,
I have sold my agri.land in oct-2016 for 22.5 lakhs was purchased 12 years back. recentlly i hv brought a flat in city of 5125000 can u tell me how much tax i have to paid. i already paid 1% tds amount on sale of property.
Dear Santosh,
Agricultural land if is in a rural area in India it is not considered a Capital Asset, and therefore no capital gains are applicable on its sale.
Read: Sale of Agriculture land & tax implications.
Hi, I have bought a small piece of land with personal loan of 4.5 lakhs land value in 2006 and paid a loan amount of total 6.5 lakhs. Now the selling price is approx 16 lakhs. what is the tax i need to pay. Secondly i am planning to use this money fully to buy an agricultural land for 25 lakhs. Can you please tell me the tax i need to pay.
I also have 1 house loan and 1 plot loan, which is the best way to use the money.
Dear Sandeeth,
Kindly note that Capital Gain Tax cannot be saved if the sale proceeds are invested in agricultural land.
You may use the 'LTCG calculators' which are available online by searching in Google.
Hi ,
I have sold my house for 20 lacks last year which was purchased 8 years back. and I gave that amount to one of mycousin who is in construction field .. for Rs.1.50 paisa .. is that 20 lacks amount come under black money and that amount is taxable...
Dear Venkat,
Was that Rs 20 Lakh amount white-money? What was the registered value (sale transaction)?
Hello,
I am selling my Plot/Land for 15 Lakhs and I want to pay my Home loan which was taken 2015 year.
is the money received from Plot/land selling in Taxable. Please let me know.
Dear Deshpande,
There are conflicting view-points on this.
Some tax experts believe that one can claim such exemption if both the properties - provided you bought and availed home loan on residential property within a period of one year before the date of sale of the old house.
But here in your case, it is not residential house .
I am selling my house. A buyer wants to deliver me two demand draft, the first compared to value guidance, the second check on furnitures, amount around 1.8 Cr. Is this legal? What is the amount of the income taxes on each demand draft? Thank you for your help
Dear Lamber..May I know that is 'property registration value' going to be? Is it going to get registered for the entire amount?
Forgive me, I think I now understand your question. I bring you the accuracy. The guidance value is 5 600 Rs square feet. The buyer therefore gives me the sum of 1 Cr 77 lakhs Rs 85 600 for the property by a first DD. Then he gives me a second DD for furnitures amounting to 2 Cr 57 lakhs Rs 14 400. I think that there will be two dead sale, one for the property and one for the furnitures. You can see that the amount of supplies exceeds the cost of the property while the actual price of the property is 4 Cr 35 lakhs for 3 176 sqf. I think it's illegal. The buyer does not want to legally pay the registration fees for the total amount of 4 Cr 35 lakhs but only for 1 Cr 77 lakhs Rs 85 600. I think it's me who should pay taxes in his place. It's dishonest. What do you think? Thank you so much for your response.
Dear Lambert,
Kindly do not get into such transactions. I am sure you are aware of the latest developments w.r.t to black-money etc., So try to accept the whole amount as White money and get the property registered for the entire amount (if you can find such buyer)..
Dear Sreekanth Reddy,
That's what I thought too. Thank you very much for your clear and accurate answer.
Dear Sreekanth, buyer to pay less registration fee want to give me two Demand Draft. The first Demand draft in relation of guidance value for the property, and the second demand draft for furnitures. But the second Demand draft amount for furnitures well beyond the first DD relative to the amount of the property. I think it's illegal. I would pay more taxes in place of the buyer. Supplies of my house hardly exceed 2 lakhs. I have not accepted yet pending your comments. Thanks
View Comments
Hi Sreekanth, I going to sell my plot on 20th November 2016 for 35 lakhs(Registration value 5.75 lakhs) which I had purchased in October 2014 for 30 lakhs (Registration value 5.75 lakhs). Please advise me while opening STCG, do we need to submit old registration document and new registration documents to bank? Why I am asking is, If we submit the documents, there is no profit on plot. or direct we can deposit 35 lakhs? please advise.
Dear srinivas ..Considering what is happening with black-money cases, do you think that it is wise to have accept such huge amount as accounted money? Isn't it going to be tough to convert that money to white?
If you have to deposit Rs 35 Lakh in bank, they may ask you the source of income for this transaction? In such a case it is difficult for you to justify your stand.
Dear Sir,
I have sold on nov 2016 my residential plot for 26.5 lakhs which I had purchased in oct 2010 for 10.5 lakh. Now I am going to purchase a new residential plot for 23.5 lakh on 30 Nov 2016. Please suggest what will be my LTCG and how to save tax on it.
Regards
Dear Vikas,
You have two options ie Bonds u/s 54EC or can invest the amount in CGAS to save your LTCG on sale of plot. But if you invest the proceeds only in plot then is no provision to save taxes on LTCG.
I purchased a flat for 3 lakhs and after 15 years I sold it for 22 lakhs. With that capital gain amount and some more from my pocket I purchased a PLOT of 40 lakhs. Will I be taxed if I do not construct a house within 2 years ? If not, then how many years can I take for constructing a house without getting taxed. I do not have any bank loans and I do not want to take any loans. Thanks.
Dear Sohail,
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.
Hello Sreekanth,
I am a single lady of 50 years living in a rented house and my father who passed away in 2013 left his apartment to me and also a 40% portion of a residential plot of land for me and 60% for my brother.
The land and flat were bought before 1984. The flat was bought for approximately 5 lakhs back then and is quoted at 4.5 crores now. I have no intention of selling the land right now but I want to sell the flat and buy an independent house for about 3.5 crores in another town or city within two years and keep some of the sale money aside, say 1 crore for investment in FDs or mutual funds and to meet some expenses. Could you please tell me what would I have to pay as tax for this sale. Will the buyer deduct TDS and if so how much and can I claim it back as my income is below 5 lakh a year? Any suggestions are welcome.
Thanks.
Dear Deniese Ji,
The buyer has to deduct 1% as TDS on the Registered Sale value of the property. Yes, you can claim it back when filing your Income tax return.
Yes, you can use the entire Long Term Capital Gain proceeds on sale of a residential house (Flat) to buy another house property (residential property) to save Capital Gains tax.
You may this calculator to find out approx LTCG on sale of Flat.
i have purchased a land of Rs 1000000 in the year 2005 & sold the land in the year 2016 for Rs 2500000 is it taxable or not and how to save the tax
Dear ajay ..Tax on LTCG is applicable.
To save taxes - kindly refer to the points given in the above article.
Hello,
I want to know about the capital gains tax effect in my following case.
In 2008 my mother and I sold our individual plots. Out of the combined proceeds we constructed a single bungalow in the same year. Due to funds deficiency, we had to take a loan in my wife's name. So we registered this new bungalow in the joint ownership of myself (i.e. son) and my wife (i.e. daughter-in-law). My mother's plot sale proceeds are invested in this bungalow, but her name in not in the registry. My mother resides with us only. Can you please guide me w.r.t. to the capital gains tax in the hands of my mother.
Regards
Dear Yogesh,
You may treat the amount given by your mother as Gift, which is tax-exempt.
Did she pay taxes on sale of plot in 2008?
Hello,
Thanks for the reply.
My mother did not pay any taxes on sale of plot. I want to know if she is liable to pay any capital gains tax, even though entire sale proceeds are reinvested in my (i.e. son's) bungalow?
Dear Yogesh,
Had she gifted the Plot to you and if you had sold it then onus of paying capital gain taxes (if any) would have been on you.
She had sold it - so capital gains (if any) should have been paid by your mother. After the sale transaction, she has gifted/invested in the bungalow.
Hi ,
I have sold my agri.land in oct-2016 for 22.5 lakhs was purchased 12 years back. recentlly i hv brought a flat in city of 5125000 can u tell me how much tax i have to paid. i already paid 1% tds amount on sale of property.
Dear Santosh,
Agricultural land if is in a rural area in India it is not considered a Capital Asset, and therefore no capital gains are applicable on its sale.
Read: Sale of Agriculture land & tax implications.
Hi, I have bought a small piece of land with personal loan of 4.5 lakhs land value in 2006 and paid a loan amount of total 6.5 lakhs. Now the selling price is approx 16 lakhs. what is the tax i need to pay. Secondly i am planning to use this money fully to buy an agricultural land for 25 lakhs. Can you please tell me the tax i need to pay.
I also have 1 house loan and 1 plot loan, which is the best way to use the money.
Dear Sandeeth,
Kindly note that Capital Gain Tax cannot be saved if the sale proceeds are invested in agricultural land.
You may use the 'LTCG calculators' which are available online by searching in Google.
Hi ,
I have sold my house for 20 lacks last year which was purchased 8 years back. and I gave that amount to one of mycousin who is in construction field .. for Rs.1.50 paisa .. is that 20 lacks amount come under black money and that amount is taxable...
Dear Venkat,
Was that Rs 20 Lakh amount white-money? What was the registered value (sale transaction)?
Hello,
I am selling my Plot/Land for 15 Lakhs and I want to pay my Home loan which was taken 2015 year.
is the money received from Plot/land selling in Taxable. Please let me know.
Dear Deshpande,
There are conflicting view-points on this.
Some tax experts believe that one can claim such exemption if both the properties - provided you bought and availed home loan on residential property within a period of one year before the date of sale of the old house.
But here in your case, it is not residential house .
I am selling my house. A buyer wants to deliver me two demand draft, the first compared to value guidance, the second check on furnitures, amount around 1.8 Cr. Is this legal? What is the amount of the income taxes on each demand draft? Thank you for your help
Dear Lamber..May I know that is 'property registration value' going to be? Is it going to get registered for the entire amount?
Forgive me, I think I now understand your question. I bring you the accuracy. The guidance value is 5 600 Rs square feet. The buyer therefore gives me the sum of 1 Cr 77 lakhs Rs 85 600 for the property by a first DD. Then he gives me a second DD for furnitures amounting to 2 Cr 57 lakhs Rs 14 400. I think that there will be two dead sale, one for the property and one for the furnitures. You can see that the amount of supplies exceeds the cost of the property while the actual price of the property is 4 Cr 35 lakhs for 3 176 sqf. I think it's illegal. The buyer does not want to legally pay the registration fees for the total amount of 4 Cr 35 lakhs but only for 1 Cr 77 lakhs Rs 85 600. I think it's me who should pay taxes in his place. It's dishonest. What do you think? Thank you so much for your response.
Dear Lambert,
Kindly do not get into such transactions. I am sure you are aware of the latest developments w.r.t to black-money etc., So try to accept the whole amount as White money and get the property registered for the entire amount (if you can find such buyer)..
Dear Sreekanth Reddy,
That's what I thought too. Thank you very much for your clear and accurate answer.
Dear Sreekanth, buyer to pay less registration fee want to give me two Demand Draft. The first Demand draft in relation of guidance value for the property, and the second demand draft for furnitures. But the second Demand draft amount for furnitures well beyond the first DD relative to the amount of the property. I think it's illegal. I would pay more taxes in place of the buyer. Supplies of my house hardly exceed 2 lakhs. I have not accepted yet pending your comments. Thanks