3 Ways To Save Capital Gain Tax on The Sale of a Property

2025-04-02

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Selling a property is a huge and tiresome task in itself, and contemplating the fact that you will be imposed a tax on your capital gains can be a huge apprehension. An investment executed on procuring land is regarded as capital assets, and when you trade it, the resulting earnings are known as capital gains.

Hence, if you intend to trade your property, you will be required to pay capital gain tax on the earnings gained after conceding the indexed cost of acquisition and inflation depending upon the holding period of a capital asset. Although, there are numerous techniques to save on the capital gain tax at the time of sale of a property.

3 Ways to Save Capital Gain Tax on the Sale of Property

The taxes charged on the revenue generated by the trade of capital assets is regarded as capital gains tax and are defined by the term of possession of the asset as well as the actual variation between its purchase and sale price. This tax assessment is exclusively applicable if the asset is traded after a specific duration of ownership.

These capital gains are then categorized as long-term or short-term capital gains. If you trade your property within 2 years (24 months or less) of procuring it, it would be deemed a short-term capital gain. Whereas, if you trade your property after 2 years (24 months), it would be regarded as a long-term capital gain.

Long-term and Short-term Capital Gains:

Understanding the distinction between long and short term capital gains is significant because both of these gains are handled individually when it comes to taxation. The tax benefits and tax rates that pertain to the reinvestment of these two kinds of capital gains diversify.

Long-term Capital Gains on the disposal of property are charged at 20 percent (Source: Cleartax) along with Health & Education Cess if the sale meets specific provisions. In case there’s no indexation, the applicable tax rate would be 12.5%. If you market a gifted property or that you have received from your ancestors, you will yet be subject to pay capital gains tax on these properties.

Learn - what is long-term capital gain tax in India.

The expense of purchase, in this case, is estimated based on the value to the former owner, filed to the year of acquisition. As the sale of capital assets like property can be an important source of income or revenue, it is essential to comprehend how to save on capital gain tax on the sale of the property to maximize the revenues. Hence, to help you save capital gain tax on sale on the property, stated hereunder are a few ways.

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Invest in Bonds: If you have recently traded your property and want to save on tax, you can further invest in specified financial assets. Investment in such financial assets holds power to save your arduously earned capital gains as these long term capital gains are exempted under Section 54EC of the Indian Income Tax Act, 1961.
To obtain this tax exemption on your capital gains, you should invest the sum earned in bonds within 6 months of the transfer of the sum and realization of gains. In addition to this, the funds are required to be invested in these bonds for a minimum of three years as a lock-in period.

If you keep the funds invested in these bonds for a period beyond the lock-in period of three years, you will not gain any interest, and the redemption of these capital gains bonds will become automated. The other limitations in investing your capital gains on property sale are that you cannot assign these bonds to any other party or contract or trade them.
Invest in CGAS (Capital Gains Account Scheme): Investing in Capital Gains Account Scheme (CGAS) is another means to save capital gains tax on property sales. This scheme is perfect for individuals who cannot invest in a brand-new property before their income tax return filing, and this scheme provides a huge relief to the taxpayers.
You can invest in this CGAS scheme for three years, and throughout this duration, you can utilize the capital gains for buying or building a residential house on your property. The deposit in this CGAS account must be made before filling or registering an income tax return, and then this investment in the Capital Gain Account Scheme (CGAS) must be specified in the income tax return.

This CGAS account can be opened just with designated banks. Also, a regional bank and cooperative bank are not qualified for opening this account. The deposit in this account can either be made through monthly installments or lump sum to save taxes on capital gains.
Set Off all Capital Losses:This is again the most suitable way to save tax on capital gains resulting from the sale of your property. It enables you to set off all capital gains or profits against the capital losses you incurred earlier. It is analogous to the same year adjustment of capital loss and capital gains. However, the capital loss must be from the former date, and short term capital loss can only be set off against short term capital gains.

Similarly, long term capital losses can be only set off against the long term capital gains along with the stipulation to carry forward all the capital losses for 8 consequent years. Apart from this, to carry forward all your capital loss, the income tax return must be filed before the closing date of your income tax return filing.

Investing in real estate properties can assist in asset creation to provide you with financial protection and stability for the future. Hence, by benefiting from the tax-saving schemes discussed above, you can receive the maximum advantage on your property investment.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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