“You should have contacted me once before selling the property,” businessman, Mahesh Srinivas’ accountant said. “As per your current tax slab, you will have to pay a tax of 30% on the profit you made from the sale of your property.” Astonished and taken aback, Mahesh, who sold his residential property within a year after purchasing it, asked for a clarification.
“If an individual sells property within two years of acquiring it, then the tax department treats the profit from the sale transaction as a short-term capital gain,” the accountant, explained. “Short-term capital gains are added to the total income and taxed according to the tax rate slab applicable for an individual.” In Srinivas’ case, it is 30%, as his earning is over Rs 10 lakh a year.
Mahesh invested in a residential property in the Begumpet area of Hyderabad in February 2018. In November 2018, seeing an appreciation in the market value, he sold off the property, making a handsome profit from the sale. But like most people, Mahesh wasn’t aware that the ‘timing’ of the sale plays a critical role in this matter. Being uninformed about the taxes on the sale of property in India, shaved off 30% of the profit Mahesh made.
Though it is difficult to keep a close eye on the calendar while selling a property, it is still important to consider the effects of taxes on the sale of property in India to maximize your profit. Here is all you need to know about the tax implications of selling your property.
Structure of Capital Gains in Case of a Property Sale
India’s Income Tax Act divides capital gains into 2 categories: Long Term Capital Gains (LTCG) and Short Term Capital Gains (STCG).
What is a Long Term Capital Gain?
When an individual purchases a property and sells it after two years, then the profit from the sale comes under long-term capital gains. Long term capital gains attract a flat tax rate of 20 per cent.
What Is a Short Term Capital Gain?
When an individual buys a property and sells it within two years of the purchase, then the profit from the sale comes under short-term capital gains. Short term capital gains add up to the taxable income of the individual and attract taxes as per the individual’s applicable Income Tax slab.
How to Calculate Long-Term Capital Gains (LTCG) on Property Sale?
**LTCG is calculated as follows:
| Particulars | Amount |
| Full Sale Price (Value of Consideration) | xxxx |
| (Less) Expenditure incurred, such as transfer cost, advertisement, and brokerage | xxxx |
| Net Sale Value | xxxx |
| (Less) *Indexed Cost of Purchase (Acquisition Cost of the Property) | xxxx |
| (Less) *Indexed Cost of Property Improvement (Expenses incurred after buying the Property) | xxxx |
| Long-Term Capital Gains | xxxx |
*Indexed, or Indexation is an adjustment made to factor in the effects of inflation. The adjustment is done using the “Cost inflation Index” provided by the Income Tax department.
The “Cost Inflation Index” is as follows:
| Year | Cost Inflation Index | Year | Cost Inflation Index |
| 2001-02 | 100 | 2010-11 | 167 |
| 2002-03 | 105 | 2011-12 | 184 |
| 2003-04 | 109 | 2012-13 | 200 |
| 2004-05 | 113 | 2013-14 | 220 |
| 2005-06 | 117 | 2014-15 | 240 |
| 2006-07 | 122 | 2015-16 | 254 |
| 2007-08 | 129 | 2016-17 | 264 |
| 2008-09 | 137 | 2017-18 | 272 |
| 2009-10 | 148 | 2018-19 | Not announced yet. |
Let’s say, Mr. A buys a property in 2012 for Rs 50,00,000 and sells it in 2016 for Rs 80,00,000. He paid a brokerage of Rs 30,000.
Now, let’s see Mr. A’s long-term capital gain liability –
| Particulars | Amount |
| Full Sale Price (Value of Consideration) | 80,00,000 |
| (Less) Expenditure incurred, such as transfer cost, advertisement, and brokerage | 30,000 |
| Net Sale Value | 79,70,000 |
| (Less) *Indexed Cost of Purchase (Acquisition Cost of the Property) | 66,00,000 |
| (Less) *Indexed Cost of Property Improvement (Expenses incurred after buying the Property) | NIL |
| Long-Term Capital Gains | 13,70,000 |
The calculation of Indexed cost of acquisition is done in the following manner –
The cost of acquisition in 2012 was Rs. 50,00,000.
The Income Tax department, using the Cost Inflation Index, calculates the fair price of the property at the time of its sale, which is 2016.
2016 Fair Price = 50,00,000 * 264/200 = Rs 66,00,000
Here, Mr. A will be charged a flat rate of 20% on the Long-Term Capital Gains of Rs 13,70,000.
How to Calculate Short-term Capital Gains on Property Sale?
**STCG is calculated as follows:
| Particulars | Amount |
| Full Sale Price (Value of Consideration) | xxxx |
| (Less) Expenditure incurred, such as transfer cost, advertisement, and brokerage | xxxx |
| Net Sale Value | xxxx |
| (Less) Cost of Purchase (Acquisition Cost of the Property) | xxxx |
| (Less) Cost of Property Improvement (Expenses incurred after buying the Property) | xxxx |
| Short-Term Capital Gains | xxxx |
For example, Mr. A buys a property in 2012 for Rs 50,00,000 and sells it within two years for Rs 65,00,000. He paid a brokerage of Rs 30,000.
Mr. A’s short-term capital gain tax liability will be –
| Particulars | Amount |
| Full Sale Price (Value of Consideration) | 65,00,000 |
| (Less) Expenditure incurred, such as transfer cost, advertisement, and brokerage | 30,000 |
| Net Sale Value | 64,70,000 |
| (Less) Cost of Purchase (Acquisition Cost of the Property) | 50,00,000 |
| (Less) Cost of Property Improvement (Expenses incurred after buying the Property) | NIL |
| Short-Term Capital Gains | 14,70,000 |
Rs 14,70,000 will be added to Mr. A’s taxable income, and Mr. A will have to pay taxes on the short-term capital gain according to his tax slab rates.
**LTCG & STCG calculations as per https://www.paisabazaar.com/blog/tax-on-sale-of-property-in-india/
How Can You Save Tax on Capital Gains?
Honestly, you cannot avoid paying taxes on short-term capital gains if you sell your property within two years of its acquisition. However, there are ways you can save taxes on long-term capital gains. Here are some of them:
Under section 54 of the Income Tax Act. Under Section 54, you can avoid paying tax on long-term capital gains if you reinvest the gains to buy another property. To save taxes, you will have to buy the new property one year before the sale or two years after the sale. The new property should not be transferred within three years of the acquisition. Otherwise, the tax exemption will be reversed. If the new property is under construction, you will have to make it fit for living within three years of the old property sale.
As per section 54EC of the Income Tax Act, you can claim long-term capital gains tax exemption if you invest the amount from the property sale to buy bonds issued by NHAI and REC, and hold these bonds for a minimum period of 5 years.
So you see, if you plan the sale of your property the right way, you can earn good returns on your real estate investments while saving long term capital gains tax.
I found your article very informative and I totally love how the concepts are explained in this blog post. Thanks for sharing your insights. It helps a lot.
I want sell residential property in India &buy one in Singapore as my son is citizen there
Dear Sir, informative blog,
My query: I got possession of my property in Valsad( Gujarat) in march 2015, settled all loans in jul/ Aug 2018. I HV retired w.e.f. 31.12.2018. I want to sell this property, pl advise: (I) if you can help me sell the same: and ( ii) being retired sr. Citizen LADY, the tax aspect of it, a way to save up the maximum. Thx and regards
Thank you for reaching us. Unfortunately we are unable to assist you in selling off your property as we do not have operations in Gujarat as of now. Regarding the tax saving aspect we would suggest you to consult a tax consultant for better guidance.
I have sold my house on 30 Nov 2019 now I want to give this money to my brother for purchase a land can I avoid from capital gain tax.how can I give this money as a gift to my brother. The cost of home is 27 lakh
i have to sell a 10 yr old property and want to give proceeds to my son and daughter in equal proportion to supplement for purchase houses individually. can i be exempted from LTCG tax.
@Ashok Bhan, thank you for reaching us. Regarding your query we would suggest you to consult a tax consultant for better understanding.
This is really informative.
One question. Does LTCG explained above applies even when selling Land acquired in 2012 being sold in 2016 and the proceeds are being re-invested in buying another piece of agricultural land.
Great article, Great content with all the helpful information.Thanks for sharing!
Quality content and Thanks for sharing………Good Job
Thanks for sharing such informative blog
Thank you for educating us here as to how we can save taxes on the sale of a property in India. This is something that I wanted to know from you for a long time, and you’ve finally shared this important information here.
Great Blog! Thanks for sharing this remarkable piece of information…
i sell my house for six lakhs rupeees. How i can escape capital gains tax by investing in tax free bonds etc… etc.. ?
What’s 200 here?
2016 Fair Price = 50,00,000 * 264/200 = Rs 66,00,000
What would have been that denominator if I had bought property in 2011
Great blog …. but there some queries on how to avoid and reduce the tax on capital gain.
we are selling a commercial property ……. and what are the reinvestment options we can have after selling ……………….. can we invest money in buying a commercial property to avoid or reduce tax on capital gain.
Thanks for sharing decent data with respect to land and furthermore Buying land for venture or professionally is viewed as a significant move monetarily and inwardly. Or maybe putting resources into some other
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Wow!!! it is an amazing post about properties taxes.i got an idea for buying property with this article.
After selling off the property after 2 years, and reinvesting in a new one, will the registration cost for the new one in West Bengal be exempted from long term capital gains computation?
No, it will not be exempted.
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Sir,
I found this article very informative and useful. I have a query on claiming LTCG exemption by purchsing new property one year prior the date of sale of old property.
SOLD a 20 year old flat for sale consideration 48 Lakhs (Stamp Duty 61 Lakhs) on Sep 2020
which was acquired on May 1999 for 10.5 lakhs , Indexed cost of Acq 10.5 *301/100 = 32.5 lakhs , So LTCG is 61 – 32.5 = 28.5 lakhs.
I have purchase a another new flat 10 months earlier on Nov 2019 jointly with spouse for 1.48 crores with 50% share.
In ITR 2020-21 can I claim LTCG exemption for the sale of old flat in Sep2020 with the purchase of new flat joint with spouse for 148 lakhs in Nov 2019 . As This purchase was 10 months earlier I have purchased the new flat with my retirement benefit and Fixed deposits not from the actual money received after the sale of old flat.
I assume this is the case of purchase house before one year to claim LTCG exemption.
Thanks in advance