When you sell a property—like a house, land, or building—you may earn a profit.
This profit is called a Capital Gain, and it can be taxable under the Income Tax Act.
But the good news is: you can save this tax if you use the right exemptions.
What is Capital Gains Tax on Property?
Capital gain is the profit you make when you sell your property for more than what you paid.
There are 2 types:
- Short-Term Capital Gain (STCG) – If property is sold within 2 years
- Long-Term Capital Gain (LTCG) – If property is sold after 2 years
Capital Gains Tax Rates on Property
| Type | Holding Period | Tax Rate |
|---|---|---|
| STCG | Less than 2 years | As per your income slab |
| LTCG | More than 2 years | 20% (with indexation benefit) |
Capital Gains Formula
LTCG = Sale Price – Indexed Purchase Price – Expenses
Indexed Purchase Price means your original cost is adjusted for inflation using the Cost Inflation Index (CII).
Example:
- You bought a house in 2010 for ₹20 lakh
- Sold it in 2025 for ₹80 lakh
- Indexed Cost in 2025 = ₹20 lakh × (CII of 2025 ÷ CII of 2010)
- Say it becomes ₹45 lakh
- Capital Gain = ₹80 lakh – ₹45 lakh = ₹35 lakh
- LTCG Tax = 20% of ₹35 lakh = ₹7 lakh
How to Save Tax on Capital Gains
You can claim exemptions under these sections:
1. Section 54 – Buy Another Residential House
- For individuals or HUFs who sell a residential house
- Must buy another house in India within 1 year before or 2 years after the sale (or construct in 3 years)
- Exemption = Amount invested in new house
- Can invest in only 1 house, unless capital gain is under ₹2 crore (once in a lifetime)
2. Section 54B – For Sale of Agricultural Land
- For individuals only
- Sold land must be used for agriculture by you or your parents for 2 years
- You must buy new agricultural land within 2 years
- Exemption = Amount spent on new land
3. Section 54F – When You Sell Any Property (Not Residential House)
- Applies when you sell land, commercial property, etc.
- To get exemption, you must buy 1 residential house
- You must not own more than 1 house on the date of sale
- Exemption = Full capital gain (if full sale amount is invested), else partial
4. Section 54EC – Invest in Bonds
- You can invest your capital gains (not full sale amount) in NHAI or REC bonds
- Time limit = Within 6 months of sale
- Max investment = ₹50 lakh
- Lock-in = 5 years
- Exemption = Amount invested in bonds
Real-Life Example:
Anil sells a flat and earns ₹30 lakh as LTCG. He buys another house for ₹32 lakh within 1 year.
He claims full exemption under Section 54, so he pays no tax on the gain.
