Selling a house or property can bring in a big sum — but it also brings along a big tax bill if you’re not careful. If you’ve sold land, a flat, or any real estate in FY 2024–25 (i.e., between April 1, 2024, and March 31, 2025), understanding capital gains tax and how to legally save tax on it is crucial.
In this article, we break down:
- What capital gains tax applies on sale of property
- How to calculate it
- Legal ways to save or defer tax using exemptions
- Pro tips to avoid TDS and interest
What Is Capital Gains Tax on Property?
When you sell a residential property, land, or commercial space, the profit (sale price minus purchase cost) is known as Capital Gains.
There are two types:
1. Short-Term Capital Gains (STCG)
- Applies when the property is sold within 2 years of purchase.
- Taxed at slab rates (same as your salary income).
2. Long-Term Capital Gains (LTCG)
- Applies if property is sold after 2 years.
- Taxed at 20% with indexation benefit (i.e., your purchase cost is adjusted for inflation).
- Surcharge + 4% cess may apply.
Example:
You bought a flat in April 2014 for ₹40 lakh and sold it in May 2024 for ₹90 lakh.
- Indexed cost (using Cost Inflation Index): ₹40 lakh × (348/240) = ₹58 lakh approx
- LTCG = ₹90 lakh – ₹58 lakh = ₹32 lakh
- Tax = 20% of ₹32 lakh = ₹6.4 lakh (plus cess)
How to Save Tax on Capital Gains from Property Sale
The Income Tax Act allows specific exemptions if you reinvest the gains in specific ways. Here’s how:
1. Buy or Construct Another Residential House – Section 54
- Applies if you sold a residential property and buy or construct another residential house.
- You must purchase within 1 year before or 2 years after the sale, or construct within 3 years.
- Maximum exemption = amount invested in new property.
- Only allowed for one residential house in India.
- From AY 2024–25, exemption is capped at ₹10 crore.
Tip: Register the new house in your name and reinvest before filing ITR.
2. Invest in Capital Gains Bonds – Section 54EC
- Applicable for sale of land or building (residential or commercial).
- Invest the gains (up to ₹50 lakh) in NHAI, REC, or IRFC bonds within 6 months of sale.
- Lock-in: 5 years (cannot sell before).
- Interest on bonds is taxable, but principal is tax-exempt.
3. Buy Agricultural Land – Section 54B
- Only if you’re selling agricultural land and buy another agricultural land within 2 years.
- You must be an individual or HUF.
- Land must have been used for agriculture in at least 2 out of 5 years before the sale.
4. Deposit in Capital Gains Account Scheme (CGAS)
Can’t reinvest before filing ITR?
Use the Capital Gains Account Scheme in a nationalized bank to park the money temporarily.
- You must deposit the LTCG amount before the due date of ITR filing.
- Use the amount later to buy/construct the house within the prescribed timeline.
- If not used, the deposit becomes taxable in the year of expiry of the 2/3-year period.
TDS Rules on Sale of Property
If the sale value exceeds ₹50 lakh, the buyer must deduct 1% TDS under Section 194-IA.
As a seller:
- Ensure the TDS is deposited by the buyer.
- Collect Form 16B and verify in Form 26AS.
- If you are a non-resident, TDS @ 20% or more may apply under Section 195.
Don’t Forget Advance Tax!
If your capital gains are not fully exempt, and tax payable > ₹10,000, you must pay advance tax.
Avoid interest under Sections 234B and 234C by paying in:
- 15% by 15th June
- 45% by 15th Sept
- 75% by 15th Dec
- 100% by 15th March
If sale happens late in the year, you can pay full tax in March.
Reporting Capital Gains in ITR
- Use ITR-2 or ITR-3 (if you have business income).
- Declare full sale value, indexed cost, and exemptions claimed.
- Attach CGAS proof or new property details, if claimed.
Final Thoughts
Selling property in FY 2024–25? Plan ahead to avoid unnecessary taxes. Reinvest smartly to claim exemptions under Sections 54, 54EC, or 54B. And don’t forget to report everything correctly in your ITR to stay compliant and avoid scrutiny.
For more guides like this, explore our property tax series at Stox N Tax – India’s one-stop DIY tax blog.
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