Selling a property is a huge and tiresome task, and contemplating 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 a capital asset, and when you trade it, the resulting earnings are known as capital gains. Hence, if you trade your property, you will pay capital gain tax on the earnings gained after deducting the indexed cost of acquisition and inflation. However, there are numerous techniques to save on the capital gain tax. Wondering how to save tax on selling property in India? You have landed at the correct place. We have explained it in detail in this blog.
Key Takeaways
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The profit or gains you make by selling a capital asset are known as a capital gain. The gain from a capital asset can be classified as short-term or long-term capital gain, depending on how long the asset is held.
The tax charged on this capital gain is known as the capital gains tax. This tax is charged under the head of capital gains for the sale made in the previous year. You are liable to pay the capital gains tax when:
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Capital assets are the assets owned by an individual for long-term use or investment, such as property, land, shares, mutual funds, or gold. These assets are not meant for regular buying and selling but are held to build wealth or generate returns over time. Capital Assets serve as the basis for the calculation of capital gains. According to the Income Tax Act, you can include the following under capital assets.
The following, though called assets, are not included under capital assets:
Capital Assets can be classified based on the duration you hold them. These can be:
Let’s understand a bit about both types of capital assets in Income Tax.
Any capital asset that you hold for less than 24 months (36 months if the transfer takes place before 23-07-2024) can be called a "short-term capital asset." However, for some specific assets, these criteria can be 24 months or 12 months.
Exceptions:
If you hold land or an unlisted share for more than 24 months (36 months if the transfer takes place before 23-07-2024), you will be subject to long-term capital gains tax.
Capital assets that you hold for more than 24 months (36 months if the transfer takes place before 23-07-2024) can be classified as long-term capital assets.. Movable assets, such as jewellery, if held for more than 24 months, (36 months if the transfer takes place before 23-07-2024), will be classified as long-term assets. This period can be 12 months depending on the asset type.
The period for which you hold your capital asset will help determine whether the capital gains made can be considered a long-term capital gain or not. These are the assets or investments that can help you generate long-term capital gains.
Understanding the distinction between long-term and short-term capital gains is significant because both of these gains are handled individually when it comes to taxation. The property selling tax benefits and rates that pertain to the reinvestment of these two kinds of capital gains are diversified.
Both long-term and short-term capital gains have different tax rates depending on the asset type and the duration. Here is the table depicting these tax rates:
| Product | Tax on STCG (Before 23-07-2024) | Tax on STCG (On/after 23-07-2024) | Tax on LTCG (Before 23-07-2024) | Tax on LTCG (On/after 23-07-2024) |
|---|---|---|---|---|
Listed equity shares (STT paid) | 15% (Sec 111A) | 20% (Sec 111A) | 10% on gains above ₹1,00,000 (Sec 112A) | 12.5% on gains above ₹1,25,000 (Sec 112A) |
Unlisted equity shares | Normal slab rates (STCG) | Normal slab rates (STCG) | 20% (general LTCG rate) | 12.5% without indexation (general LTCG rate) |
Listed preference shares | Normal slab rates (STCG) | Normal slab rates (STCG) | Beneficial of: 20% with indexation or 10% without indexation (listed securities category) | 12.5% without indexation |
Unlisted preference shares | Normal slab rates (STCG) | Normal slab rates (STCG) | 20% (general LTCG rate) | 12.5% without indexation (general LTCG rate) |
Equity mutual funds / equity-oriented funds (STT paid) | 15% (Sec 111A) | 20% (Sec 111A) | 10% on gains above ₹1,00,000 (Sec 112A) | 12.5% on gains above ₹1,25,000 (Sec 112A) |
Equity mutual funds / equity-oriented funds (STT not paid) | Normal slab rates (STCG) | Normal slab rates (STCG) | 20% (general LTCG rate) | 12.5% without indexation (general LTCG rate) |
Sovereign Gold Bond (listed) | Normal slab rates (STCG) | Normal slab rates (STCG) | Beneficial of: 20% with indexation or 10% without indexation (listed securities category) | 12.5% without indexation |
Any other bond (listed) | Normal slab rates (STCG) | Normal slab rates (STCG) | Beneficial of: 20% with indexation or 10% without indexation (listed securities category) | 12.5% without indexation |
Specified mutual funds (debt funds)* | Normal slab rates (STCG) | Normal slab rates (STCG) | 20% (general LTCG rate) | 12.5% without indexation (general LTCG rate) |
Other mutual funds | Normal slab rates (STCG) | Normal slab rates (STCG) | 20% (general LTCG rate) | 12.5% without indexation (general LTCG rate) |
Units of AIF (anything other than listed shares)** | Normal slab rates (STCG) | Normal slab rates (STCG) | 20% (general LTCG rate) | 12.5% without indexation (general LTCG rate) |
Mutual funds come in various types, with two of the most favored categories being equity mutual funds and debt mutual funds. Equity mutual funds are those that consist of at least 65% of the equity in the whole fund. Here are their tax rates.
| Fund type | Acquired on/before 01-04-2023: Short-term capital asset | Acquired on/before 01-04-2023: Long-term capital asset | Acquired after 01-04-2023: Short-term capital asset | Acquired after 01-04-2023: Long-term capital asset |
|---|---|---|---|---|
Debt funds | At tax slab rates of the individual | 20% (general LTCG rate; indexation as applicable under the then law) | At tax slab rates of the individual | At tax slab rates of the individual |
Equity funds (equity-oriented; STT applicable) | 15% (Sec 111A) | 10% on gains above ₹1,00,000 (transfer before 23-07-2024) / 12.5% on gains above ₹1,25,000 (transfer on/after 23-07-2024) (Sec 112A) | 15% (Sec 111A) | 10% on gains above ₹1,00,000 (transfer before 23-07-2024) / 12.5% on gains above ₹1,25,000 (transfer on/after 23-07-2024) (Sec 112A) |
The taxes charged on the revenue generated by the trade of capital assets are regarded as capital gains taxes 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.
Invest in CGAS (Capital Gains Account Scheme) - Investing in the 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 up to three years, and throughout this duration, you can utilise the capital gains to buy or build a residential house on your property. The deposit in this CGAS account must be made before furnishing the return of income (and, in any case, not later than the due date applicable under section 139(1)) and then this investment in the CGAS must be specified in the income tax return.
This CGAS account can be opened only with designated banks. Regional and cooperative banks are not qualified to open this account. The deposit in this account can either be made through monthly instalments or a 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 losses and capital gains. However, the capital loss must be from the former date, and a short-term capital loss can be set off against short-term and long-term capital gains, whereas long-term capital loss can be set off only against long-term capital gains.
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 the power to save your capital gains as these long-term capital gains are exempt 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 realisation 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 continue to earn interest as per the bond terms. However, redeeming/transferring/converting into money (or taking a loan against) the bonds within the lock-in can trigger withdrawal of the exemption. Other restrictions on investing your capital gains from property sales include the inability to assign, contract, or trade these bonds.
Now that you know how to save capital gain tax, let’s move forward to understand how to calculate the capital gains from your assets. Here is a step-by-step guide for you to follow:
If you want to calculate the short-term capital gains you made in the previous year, follow these simple steps.
The long-term capital gains can be computed by following the steps given below.
Using the capital gains tax calculator, you can easily calculate the value and maximise your savings.
Note: For long-term capital assets transferred on or after 23-07-2024, indexation is not allowed and the original cost of acquisition/improvement is deducted (subject to the portal’s noted grandfathering provision for certain resident individuals/HUFs for land/building acquired before 23-07-2024)
The capital gains you make are generally large and attract a tax depending on the asset type, holding period (short-term/long-term), and the transfer date. Thus, the government has introduced various exemptions to lower your capital gains tax liability.
Let's understand with an example.
Akshay purchased land in the year 2000 for a value of ₹10,00,000. Twenty five years later, in the year 2025, he decided to sell it for a whopping ₹1 Cr.
On calculation, his LTCG tax will be:
Thus, he now has to pay over ₹11 lakhs for the capital gain he made. But knowing all about income tax, Akshay knew he could bring the amount further down by making use of the exemptions.
These are explained in the section below.
The exemption under this section is regarding the profit that you earn on the sale of property that you use for your residence. Under this section, the whole capital gain can be exempt if it is fully utilised.
Eligibility:
This exemption comes into play if the capital asset is a long-term capital asset other than a house property. You can avail yourself of this exemption if you decide to invest the net sale consideration in one property. The exemption will be provided to you only if:
Notes: If the sale consideration is not utilised by the due date of filing the return of income, the unutilised amount can be deposited in the Capital Gains Account Scheme (CGAS).
If the sale consideration is not utilised by the due date of filing the return of income, the unutilised amount can be deposited in the Capital Gains Account Scheme (CGAS).
Every person is eligible for this deduction provided that they have held a long-term asset, i.e., and or building (or both), for more than 24 months. This exemption is available if you decide to invest the capital gain made through the sale of land, buildings, etc., in certain bonds.
Eligibility:
The government has provided a list of the bonds you can buy to avail of this exemption.
Investing in real estate can help build assets and provide financial protection and stability for the future. Hence, by benefiting from these tax-saving schemes, you can receive the maximum advantage on your property investment.
For businesses that face compulsory acquisition of industrial land or buildings, Section 54D offers a crucial exemption on capital gains. This exemption aims to support businesses by providing relief when the government acquires their property.
The key conditions for claiming the section 54D exemption are as follows:
The asset must be industrial land or a building that has been in use for business purposes for at least two years before the date of acquisition.
The taxpayer must reinvest the capital gain in acquiring another industrial land or any right in land/building, or construct any other building within three years from the date of transfer.
If the new property is sold within three years, the exempted capital gain is treated as income in the year of sale. (On sale within 3 years, the exemption claimed is deducted from the cost of acquisition while computing capital gains on transfer of the new asset)
Note: If the capital gain is not utilised up to the date of filing the return of income, the unutilised amount can be deposited in the Capital Gains Deposit Account Scheme to claim the exemption.
By strategically reinvesting under this section, taxpayers can effectively manage how to save capital gain tax, ensuring compliance and financial security.
For listed equity shares and equity-oriented mutual funds taxed under 112A, the annual tax-free LTCG limit is ₹1.25 lakh for transfers on/after 23-07-2024.
Source: PIB
Non-resident Indians (NRIs) are subject to special capital gains tax rules that differ from those applicable to residents. Understanding these regulations is essential to managing tax liabilities effectively.
NRIs are taxed based on the nature of the capital gain:
Short-term Capital Gains (STCG) from the sale of property, equity, or mutual funds are taxed at 20% (where STT is applicable – e.g., listed equity/equity-oriented funds covered under section 111A) or as per the applicable slab rate for other assets.
Long-term Capital Gains (LTCG) are taxed at 12.5% (without indexation)
NRIs selling property in India may request a Lower or Nil TDS Deduction Certificate (LDC) under Section 197 to ensure TDS is deducted on actual capital gains, not the full sale amount. The request is submitted online using Form 13.
The Budget 2025 introduced stricter tax rules for NRIs, particularly affecting income earned outside India. These changes include:
Enhanced TDS rates for certain capital gains categories
New documentation requirements to avail of treaty benefits, making tax compliance more complex
Stricter residency conditions impact individuals working abroad for extended periods
For NRIs investing in Indian property, these changes highlight the importance of exploring legal ways to save capital gain tax on property through exemptions and deductions.
The Budget 2025 introduced key updates to capital gains tax laws to simplify tax structures and improve compliance. Key changes include:
Introduction of standardised tax rates for various asset classes to reduce ambiguity.
Revised holding period criteria for LTCG calculations across investment types.
New exemption thresholds for smaller property transactions, ease the tax burden on middle-income groups.
Understanding how to minimise capital gains tax through strategic investments and utilising tools such as a capital gains tax calculator is crucial for maximising investment returns. By exploring exemptions under the Income Tax Act, such as reinvesting in capital gains bonds or purchasing a new property, taxpayers can effectively manage their tax liabilities and optimise their financial planning. Empowering yourself with these insights not only ensures compliance but also enhances opportunities for tax-efficient wealth creation.
Short-term capital gains are usually not exempted from taxes. However, resident individuals may be able to use the basic exemption limit (in the old tax regime) against their total income, including capital gains, if eligible as per the following criteria:
Yes, short-term capital gains (STCG) under ₹1 lakh are taxable. Unlike LTCG on listed equity shares and equity-oriented mutual funds, STCG has no ₹1 lakh exemption threshold. The ₹1 lakh limit is exclusively an LTCG benefit, not applicable to STCG.
To avoid capital gains tax on the sale of property, consider reinvesting capital gains or net consideration (as appliable) within specified timelines under sections like 54, 54EC, or 54F of the Income Tax Act, and if the amount can’t be utilised before filing the return, deposit the unutilised amount in the Capital Gains Account Scheme (CGAS) to claim the exemption.
Individuals aged 60 years or older with an annual income of ₹3 lakh or less and those aged 80 years or older with a yearly income of ₹5 lakh or less will not be liable to pay capital gains tax on property.
NRIs are subject to capital gains tax based on the duration of property ownership in India, such as property, shares, and mutual funds. Foreign income and gains from assets outside India are generally not taxable in India for an NRI.
To reduce the capital gains tax on property, it is advisable to invest in Capital Gains Account Schemes and Bonds and set off the capital losses.
Income tax and capital gains tax are not the same. Income tax is levied on the total income earned by an individual or entity, including salaries, business profits, and interest income. Capital gains tax, on the other hand, is specifically imposed on the profits made from the sale of capital assets, such as property or investments, based on the duration of ownership and the type of asset sold.
You can reduce LTCG tax on selling a residential property mainly by claiming exemptions under the Income-tax Act. Typically by reinvesting the capital gains in a new residential house (Section 54) or investing the gains in specified bonds within the prescribed time limits (Section 54EC); if you can’t utilise the amount before filing your return, you can park the unutilised amount in the Capital Gains Account Scheme (CGAS) to keep the exemption claim valid.
Capital gain refers to the profit (or gain) arising when you transfer a capital asset, such as property, shares, mutual fund units, or other investments, for a value higher than its cost (after considering permitted adjustments); this gain is taxable under the head “Capital Gains” in the Income-tax Act.
Capital gains tax on selling a flat/property in India depends on the holding period (short-term vs long-term), and the applicable rates differ by asset type, with updated rules applying to transfers on/after 23-07-2024.
Gain type (property) | Holding period | Tax rate (transfer on/after 23-07-2024) |
Short-term capital gain (STCG) | Up to 24 months | Taxed at applicable slab rates |
Long-term capital gain (LTCG) | More than 24 months | 12.5% (without indexation)* |
* Resident individual/HUF selling land/building acquired before 23-07-2024 may have a special option to choose between the new rate (without indexation) and 20% with indexation, as applicable.
Indian income tax rules categorise capital assets by the duration they are held, defining them as Short-Term Capital Assets (STCA) or Long-Term Capital Assets (LTCA). The way profits are taxed differs substantially for each category.
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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