Tax savings on capital gains on the sale of real estate


In today’s world, buying and selling properties is part of an investment portfolio. When selling the property, saving on capital gains tax is one of the important aspects for the seller of the property.

Capital gain refers to the profit from the sale of fixed assets (stocks, property and other fixed assets). The taxes imposed by the capital gains tax service are called capital gains tax.

If the capital gain results from the sale of real estate held by the seller for less than three years, then it is a short-term capital gain (STCG), otherwise it is a capital gain. long term (LTCG).

The effective tax rates for LTCG are 20% and for STCG according to the income tax brackets in force.

How to calculate the surplus value?

For example, we have considered the property sold for Rs. 10 lakh which was bought in the year 2000 and sold in 2012 for Rs. 25 lakh.

Cost of ownership: 10,000,000; Year of purchase of the property: 2000; Sale price: 25,000,000; Year of sale: 2012; Cost inflation index (CII) in 2000: 389; Cost inflation index (CII) in 2012: 785; Indexed purchase price: 20 17 995; Added value: 04 82 005; Tax (20% of the capital gain): 96 401

Indexed purchase price = (Purchase price * CII for the sale year) / CII for the purchase year = (10,00,000 * 785) / 389

The cost inflation index is published by income tax using 1982 as the base year.

Capital gain = Purchase price indexed to the sale price.

Point to note: The seller sold a property for Rs 10 lakh to Rs 25 lakhs after holding for twelve years. Thus, according to CII, its price was around Rs 20 Lakh, at the time of the sale, so the tax will be applicable on the amount of the difference (i.e. Rs 25 Lakh – Rs 20.1799 Lakh) .

If the seller invests the money for the repair of the property (improvement cost) after the year of purchase (year 2000 in the above case), this cost should also be indexed (according to the CII calculation shown below). above) and added to the indexed purchase price.

If the property is purchased before 1982, it must be appraised by a registered appraiser and then indexed accordingly.

Now let’s take a look at some of the options that can help us save capital gains tax in the long run:

Under Article 54, the seller of the property can request a tax exemption; to receive the benefits, the seller must use all of their profits (capital gain) to buy another house. The seller has two options, either he can buy another house within two years of selling the property, or he can build a house in three years. The buyer can also buy a house 1 year before selling the house and can still avail himself of the benefit provided for in section 54. If after selling the property, the seller has not yet identified the property. The seller must open a special account, that is, a capital gains accounting system. All withdrawals from this account should be made only for the purchase of a property. However, if the seller has not purchased a property within three years of selling the property, the full amount will be exposed to LTCG.

Under Article 54 EC, the seller can invest in bonds issued by the National Highway Authority of India (NHAI) and the Rural Electrification Corporation (REC). The exemption limit under Article 54 EC is Rs. 50 Lakh.

However STCG is added to the person’s income and exposed to normal income tax slabs.


To save a long-term capital gain, the seller must buy a house within two years of selling the asset or build a house within three years. If the seller is unable to identify a good, he can open a special capital gains accounting account and park the money until he finds the good (up to a limit of 3 years). The seller can also invest money in specific bonds up to a limit of Rs 50 Lakhs to save LTCG tax.

Source: is one of the leading personal finance websites in India.

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