Many homeowners in India are unaware that profits from selling a residential property are taxable. The tax you pay — and the ways you can save — depend mainly on how long you held the property and what you do with the sale proceeds.
Here’s a simple guide.
• Tax is payable on the profit earned from selling a residential house
• This applies even if you do not regularly file income tax returns
• The tax treatment depends on the holding period of the property
If the house is sold after 24 months:
• Profit is treated as long-term capital gains
• Tax rate is 12.50 percent on long-term capital gains
• For houses bought before July 23, 2024, resident individuals and HUFs can choose between:
– 12.50 percent without indexation, or
– 20 percent with indexation
• This tax rate applies irrespective of your income tax slab
• If you have no other income or your income is below the basic exemption limit, long-term capital gains can be reduced to that extent
• Deductions under Section 80C, 80D, 80G and similar provisions are not allowed against long-term capital gains
If the house is sold within 24 months:
• Profit is treated as short-term capital gains
• Taxed as per your income tax slab
• No exemption or tax-saving option is available
• Up to ₹2.5 lakh for individuals below 60 (old tax regime)
• ₹3 lakh for those aged 60–80
• ₹5 lakh for those above 80
• Under the new tax regime, the basic exemption limit is ₹4 lakh, irrespective of age
• Invest the long-term capital gains in a ready house in India within two years of sale
• Purchase made up to one year before sale also qualifies
• For under-construction or self-built houses, construction must be completed within three years
• Brokerage, stamp duty and registration charges are included in the cost of the new house
• The new house cannot be sold within 36 months
• Unused gains must be deposited in a Capital Gains Account Scheme before the ITR filing deadline
• If not utilised within the prescribed period, the amount becomes taxable later
• Once in a lifetime, capital gains up to ₹2 crore can be invested in two residential houses
• Invest capital gains within six months of sale
• Eligible bonds include NHAI, REC, PFC, IRFC and similar institutions
• Maximum investment allowed is ₹50 lakh in a financial year
• Bond tenure is five years
• Bonds earn about 5.25 percent annual interest, which is fully taxable
• Maturity amount is tax-free
• Bonds cannot be sold or mortgaged during the lock-in period
• Tax-saving investments must be made even if the full sale proceeds are not yet received
• Both options — property purchase and bond investment — can be used together, subject to limits
Planning ahead can significantly reduce the tax burden when you sell your house.