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If you have sold any property or planning for selling any Real Estate property then this article will help you in determining how to save capital gain tax on sale of residential property or long-term capital gain tax on sale of property in India. With proper Planning and Consultation, you will get to know how to avoid capital gain tax in 100 Percent legal way. This articles also covers long term capital gain on sale of land, capital gain tax on sale of property, capital gain on sale of plot, capital gain on sale of land or capital gain on sale of flat.

 In this article, you will learn that how you can save capital gains tax India up to 2 crore rupees. Stay tuned…

Capital gain tax on sale of property/ how to calculate capital gain

Sales Consideration (Sale Value of property)-               xxx

Less: Indexed Cost of acquisition                                    xxx

Less: Indexed Cost of Improvement                                xxx

Sale related expenses is eligible to be deducted from sale value. Now you have a question like what is indexation in capital gain. See, there is a inflation exist in market. Things got costlier with the passage of time. The value you invested in acquiring assets on that day have increased. So we will get the benefit of it. Indexation refers to recalculating the purchase price, after adjusting for inflation index, as published by the Income Tax authorities. Since the purchase price is adjusted for inflation, the capital gain gets reduced. We will come to the rate of indexation later. In case of LTCG for non-equity funds, investors can avail the indexation benefit. After calculating Capital gain tax on sale of property we have to determine whether it is

• Long term capital gain (LTCG)
• Short Term capital gain (STCG)

If we held an immovable property for up to 24 months, then it is a STCG otherwise it’s a LTCG.

Now the question arises- What is capital gains tax on sale of property?                                                                                                          

Capital gain tax India provides Tax rates at 0%, 15% and 20% depending on the nature of assets.

If we talk about long term capital gain tax on sale of property in India, LTCG is levied at the flat rate of 20% on Capital gain value. short term capital gain tax rate is 15%

Now we will discuss how to save capital gain tax on sale of residential property which is Long term capital asset.

We have 3 best ways, with the help of them, capital gain tax on property can be saved.

Here are the Long term Capital gain Tax exemptions on sale of land

	Section 54	Section 54 EC	Section 54F
Who is eligible	Individual/HUF	Any Person	Individual/HUF
Type of asset	Residential Property	Any Long term Capital asset	Land/ plot (other than residential house)
Holding period of original asset	More than 2 years	More than 2 years	More than 2 years
New Investment to be made in	Residential house	Notified Bonds	Residential house
Time Limit ( from the date if sale)	Purchase in 1 year backward or 2 year forward	Within 6 months	Purchase 1 year backwards or 2 year forwards          Or Construction in 3 year forward
Exemption limit	Total investment made in New asset or Capital gain ( whichever is lower)	Total Long term capital gain or 50 lakhs whichever is lower	Net Consideration: LTCG*amt. invested in new house divided by sale proceeds of original assets

Since the indexation benefits and these exemptions are only allowed in long term capital gain on property

only. For Short term capital gain tax (assets held up to 24 months), we have to compute STCG in following manner-

Total sale price (full value of Consideration) :                             xxx

Less: Expenses related to sale                                      xxx

Less: Acquisition cost                                                  xxx

Less: Cost of Improvement                                          xxx

So, if you have a Gain, which is nature of Short term capital gain, we don’t have many ways to save it. We have limited ways to treat cg tax like

• STCG will be added in our total income like Income from salary, Business along with Short term capital gain and we all know we have to pay 0 Tax for income up to 500,000 (after claiming rebate for individual)
• Tax on short term capital gain is 15% normally.

Further, if we talk about Tax long term capital gain tax on sale of property in India.

And how to save capital gain tax than we have 3 ways (capital gain exemption) as explained above. Now I will tell you the benefit/ advantage and disadvantage, comparisons on options available for long term capital gain on property

You may also like- Tcs on sale of goods exceeding 50 lakhs in a year

1. Capital gain on sale of house property section 54 

Any long-term capital gain tax on sale of property in India shall be exempt that such amount is invested within one year backwards or within 2 years from the date of transfer or in the construction of a new residential house property within 3 year from the date of transfer.

If you complete the above criteria you can save tax on sale of property.

For more relief to tax payers, Finance Act-2019 has inserted a new proviso under section 54 (1) where the amount of capital gain does not exceed Rupees 2 Crore, Taxpayers may, at his option, Purchase or Construct 2 residential house in India. if you have exercised option 1, i.e. 21 residential properties than you can’t exercise the option no. 2. Therefore, exemption can be claimed for purchase/construction of two residential house in India This benefit is available only if capital gains tax on property sale does not exceed amount Rs 2 crore. It’s a one in a life time exemption available to a taxpayer.

Note- Tax saving in this option will be huge. You will need proper guidance and consultation before exercising this option. Conditions are strict. Violation will lead to tax applicability on capital gain. tax on selling property in India is minimized

2. Section 54 EC- Purchase capital gains bonds of NHAI OR REC

If you are not interested in purchasing residential property or you cannot comply with requirement of residential property requirement than Income tax offers you a different option which is capital gain bond in which we can invest up to Rs. 50 lakhs and we don’t have to pay Capital Gain at all. The main features of this section and taxation of bonds in India is here-

• If we have a Capital Gain up to 50,00,000 Rs. Only then we can exercise this option. You cannot invest more than 50 lakhs rupees.
• Capital Gain invested in this capital gain bond will be locked for 5 year. That means rec bonds lock in period or NHAI bond lock in period is 5 year. You cannot use or sell the bonds before 5 year.
• rec bond interest rate or interest rate on capital gain bonds is vary from 5 percent to 6 percent.
• If we talk about NHAI bonds interest taxability or rec bond taxability, interest received on such bond will be added in Total Income and tax liability will be computed accordingly.
• You have to invest the amount of capital gain within 6 month of capital gain tax on sale of property that means if you want to exercise section 54 ec, that amount must be invested in bonds within six month
• To avail capital gain exemption on sale of land these bonds cannot be sold or transfer to anyone.
• Capital gain bonds are highly secure and AAA rating category. So you don’t have to worry about risk.
• These NHAI bonds or REC bonds can be hold in DEMAT form or physical form
• These bonds are sold through bank. Amount will be deducted from your bank account. We will help you in investing. Book consultation with us now.
• Your entire capital gain tax in India will be exempt and you will also receive the interest, so it’s a win situation for taxpayer.

Note- This option is highly popular in India. Reason being is it is tax free and saving is huge. If you have a capital gain let’s say 40,00,000 and you have a tax liability of 800,000 and you exercise section 54 ec than, you save a entire 8 lakhs tax plus you will have a interest income too. Saving is high in this option.

Option 3- Investing in Capital gain accounts scheme-

Sometime, we don’t want to invest in hurry and we want to take time before investing. We need time for assessing options, taking consultation and evaluating benefits, then income tax on sale of land comes with a different option which is capital gains account scheme   where you can deposit your capital gain money in approved banks. time limit for deposit in capital gain account scheme is 24 months

 In your Income tax return, you can avail the exemption of capital gain provided that amount remain in bank for at least 3 year. Withdrawing before 3 year will lead to paying tax in next financial year.

Note- decision of buying new property includes lot of research and paper works. We all need a time before investing. This option is ideal for those who wants time. It must be noted that you will not receive any interest on capital gain deposited in approved banks. You will avoid tax on property sale with this option.

Formula for computing indexed cost of acquisition and indexed cost of improvement.

Indexed cost of acquisition= cost of acquisition/ cost inflation index (cii) for the year in which asset was first held by seller or 2001-02 whichever is later * cii for the year in which asset is transfer.

Indexed cost of improvement= Indexed cost of acquisition = Cost of acquisition * Cost Inflation Index (CII) of the year in which the asset is transferred / Cost inflation index (CII) of the year in which asset was first held by the seller or 2001-02 whichever is later

In case of inherited property, index rate will be taken of 2001-02 for computing tax on sale of property

Rate of indexation can be found of income tax site or you can google it.

FILE YOUR INCOME TAX RETURN TODAY

For more information & assistance, contact TAX ADVISORY @ www.taxadvisory.in

 â€œTo save you from Money fudging, we are at your service anytime!”

BY ARJUN MITTAL

FOUNDER- TAX ADVISORY

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