The Ultimate Guide to Capital Gain Tax on Property In India

October 30, 2021

The Capital Gain Tax applies to the profit or gains from the selling of the property. The applicable Capital Gain Tax depends on various factors and can considerably impact the overall profits that remain in your hand.

What Is Capital Gain Tax on Property In India

The profit that you get by selling the property is considered as an income. And therefore you need to pay the tax on the profit or gain from selling the property. This Tax on the Capital Assets is termed Capital Gain Tax.

Real estate properties come under the category of capital assets. And therefore after selling the properties you need to pay the Capital Gain Taxes. Capital Gains Tax is categorized as Short Term Capital Gain Tax and Long Term Capital Gains Tax.

Short-Term Capital Gain TAX On Property

The profit or gain from selling the property with a holding period below 2 years is a short-term capital gain. The tax applied on this gain is called Short Term Capital Gain Tax.

How To Save Short-Term Capital Gain Tax

The taxes on the short term gains on the real estate properties can be deducted under the section 80C and 80U.

As per section 80C, you can get the Tax Concession upto Rs 1.5 Lakh.

The 80U is for persons with disabilities, and the concession is up to Rs. 75,000/- for Normal Disability and Rs. 1,25,000 for Severe Disability.

To save the Short Term Capital Gain tax you need to reinvest the profit in some other assets as per sections 80C.

You can save the Capital Gain Tax by following investment options under section 80C

Public Provident Fund
National Pension Scheme
Fix Deposit Investment for 5 Years
Unit Linked Insurance Plan (ULIP)

Long-Term Capital Gain Tax on Property

The profit or gain from selling the property with a holding period of more than 2 years is a long-term capital gain. The tax applied on this gain is called Long Term Capital Gain Tax.

The Tax applied on the Long Term Capital Gain Tax for properties is 20% (plus surcharge and cess as applicable).

The Tax on the Long Term Capital Gain of 10 % is applicable for the following cases-

Listed Securities
Transfer of Assets in Stock Exchange Security
Zero-Coupon Bond

Capital Gains Deposit Account Scheme

To get the benefit of the Tax deductions on the Capital Gains you need to reinvest the amount within the given time period. The Capital Gains Deposit System introduced in the year 1988 allows you to park the Capital Gains till you find the suitable reinvestments as per Section 54.

The Capital Gains Deposit System Benefits You In the following Ways-

Safeguards the Capital Gains before investing in the appropriate options as per the tax exemption criteria
Ensures that you don’t miss the applicable Tax exemptions
Get sufficient time to acquire new assets from the Capital Gains
Get the interest as per the Savings Bank/ Fixed deposit rates

Opening The Capital Gains Deposits Account

You can open the Capital Gain Deposit Account in any authorized bank. There are two different types of Capital Gains Deposits options - Type A and Type B. Type A Capital Gains Deposit Account are similar to the savings account. It has a simple interest that is paid at regular intervals. Type B is similar to fixed deposits and has a maximum 3-year term.

Once you withdraw the amount from the Capital Gains Deposit Account, you need to reinvest it within 60 days. For withdrawal of the Capital Gains Deposits System, you need to submit form C.

Conditions for Saving The Capital Gain Tax

You need to reinvest the profit or capital gain in the new assets within the 6 months from selling the property.

These new assets must be held for at least 3 years. The tax exemptions are reversed if the property is sold before 3 years.
The capital gain from selling the properties should not be more than the investment into the new assets.
If you reinvest only part of the capital gain the tax exemptions are applicable only on the reinvested amount.
To get the exemptions under 54, the new residential property should be purchased 1 year before or 2 Years after the sale of the existing property on which Capital Gain was received.
Capital Gain should be less than the newly purchased property.

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