Tax on selling property

Part of Tax on investments. 7 min read. Free lesson with a short video, quiz and practice.

Selling a flat, house or plot often creates the biggest capital gain of a person's life. The tax can be large, but the law also offers ways to save it if you reinvest.

Short-term or long-term

• Held more than 24 months: long-term, taxed at 12.5% without indexation.
• Held 24 months or less: short-term, added to your income and taxed at your slab rate.
• Land or buildings bought before 23 July 2024 by resident individuals: you can choose the lower of 12.5% without indexation or 20% with indexation.

Working out the gain

Gain = sale price − costs of selling (such as brokerage) − cost of buying (price + stamp duty + registration + brokerage) − cost of improvements.

If you sell below the government's stamp duty value (circle rate) by more than 10%, the stamp duty value is used as your sale price for tax.

TDS by the buyer

If the price is ₹50 lakh or more, the buyer must deduct 1% TDS and deposit it against your PAN. You claim it when you file your return. (If the seller is an NRI, TDS is much higher.)

Ways to save tax on long-term gains

• Buy another house: invest the gain in one residential house in India, bought within 1 year before or 2 years after the sale, or built within 3 years. The exemption is capped at ₹10 crore of investment. (Known as Section 54; the new law renumbered it.)
• Capital gains bonds: invest up to ₹50 lakh of the gain in specified bonds (such as from NHAI or REC) within 6 months of the sale. They are locked for 5 years.
• If you can't reinvest before the return due date, deposit the money in a Capital Gains Account Scheme at a bank to keep the exemption open.

A worked example

Anil bought a flat for ₹40,00,000 (including stamp duty and fees) in August 2024. He sells it in October 2026 for ₹55,00,000 and pays ₹55,000 brokerage. He held it for about 26 months, so it is long-term.

• Gain = ₹55,00,000 − ₹55,000 − ₹40,00,000 = ₹14,45,000.
• Tax at 12.5% = ₹1,80,625, plus cess = ₹1,87,850.
• The buyer deducts 1% TDS = ₹55,000, which Anil adjusts against this tax.

If Anil invests ₹14,45,000 or more in a new house within the time limits, the whole gain can be exempt. If the new house is sold within 3 years, the exemption is taken back.

Property deals have many details, so consult a chartered accountant before you sell.