prpri Residential property and Tax on capital gain Residential property and Tax on capital gain

When investors make profits on sale of assets like land, shares and mutual fund units, it is termed as capital gains. The investor has to pay tax on the resulting gains that is commonly referred to as capital gains tax. The amount of money outflow from your pocket depends on how long you held the property.

If a residential property is held by the seller for more than 24 months, it is considered a long-term investment. For investments over the short term, the short-term capital gain is added to your total income. You will be taxed depending on the tax bracket you fall in. When computing long-term capital gain, a bit more complexity is involved. Indexation is the process by which inflation is taken into account and the purchase price is proportionately increased. Consequently, the amount you end up paying as tax is reduced.

If you have sold a residential property for a profit, you can expect some relief on the capital gains tax payable, if you meet certain conditions. If the property you sold was held by you for at least three years – it is a long-term asset – you are entitled to relief if you buy a new house within two years from the date of sale. For those who are constructing a house, the work should be completed within three years from the date of sale. The final condition to be eligible for exemption is that the cost of the new house should be at least equal to the capital gain.

Residential property and Tax on capital gain

Let us see how to compute capital gains. Suppose a house was purchased for Rs 10 lakhs and sold for Rs 30 lakhs after four years. The transaction falls under the long-term capital gains bracket. The government publishes a cost inflation index (CII) chart for every financial year, which is used for indexation.

You must subtract the actual sale price from the actual cost of purchase to arrive at long term capital gain. To save on tax on this amount the seller must reinvest the money within two years from the sale date.

Long-term capital gains on sale of a house can be deposited under a Capital Gains Scheme of any authorised bank before the due date for filing of return of income. This may not be relevant for sellers who have already invested the entire capital gains in another house subject to conditions. The amount deposited here is considered to have been used for the purchase or construction of the new house. If the amount you have deposited is not used for buying a new house within a period of three years, the amount will be treated as long-term capital gain of the previous year.

Section 54 provides exemption on long-term capital gains arising on sale of residential property and investment of such capital gains in another residential property. The law envisages a time limit within which the investment should be made. That is two years for purchase and three years for construction. But if after the sale of the property, you cannot find another property of your choice, the amount of capital gain should be kept in any authorised bank under a Capital Gains Accounts Scheme till investment.

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16 Comments

  1. Srishty says:

    As the limit to reinvest capital gain amount is 2 years. I sold my property on 24 April 2019 and kept the capital gain in CGAS bank account. I have given the initial amount which i kept in CGAS account on 15 feb 2022 for buying a new property, but registry will be done in May 2022 (means after completion of 2 years). Can i get tax rebate as i have used the CGAS amount before 2 years as a initial token money?

  2. AMITABHA BAJPAYEE says:

    I wish to know if a house sold in June 2020, capital gain invested in FD (capital gain acccount scheme of SBI) in March 2021 will be able to qualify exmption ? Secondly, what is the Full Consideration Value means in computing Capital Gain ?

  3. Bose says:

    Can I get paid service for computation of Capital Gain Tax on sale of immovable property.
    What details you need to give solutions/options

  4. Nanny says:

    My father purchased residental property in 1991 for 55000 rs….my father sale that property in 80 lakhs recently….by calculating 2000-2001 cost of indexation…the value of house is 10 lakh nearly….as a result total long term capital gain is 70 lakh……how can i save my capital gain tax …1.if i invest 50 lakh in capital gain bonds like nhai and remaining 20 lakh in residental property then this method can save my capital gain tax or not?

  5. Rajeshkumar says:

    my friend sold the house property for sum of Rs 26,00,000/= the same amount invested in agri land for sum of Rupees 24,00,000/= can we pay the capital gain , which amount can we pay

  6. SRSUBRAMANIAN says:

    https://taxguru.in/income-tax/residential-property-and-capital-gains.html

    A small question to who are CA Professionals and experts in income tax mater , legal advocate and the incone tax authorities

    Under income tax Act & Rules (any Sec or Rules) where does the income tax says that assets assets like land, shares and mutual fund units imovable assets like land, buildings plant and machineries embedded in the earth shares and other mutual fund units are should be registered and stamp duty paid for

    Please advise with reference of sections in the income tax act.
    Or any settled case laws that for claiming STCG or LTCG assesst should be registered.

    I would more happy to receive opinions and more articles on this matter

  7. HASMUKH PATEL says:

    I had purchased residence worth Rs.7 lac, 7 or 8 years back which can
    earn more than 80 lac

    and other

    residence plot which I had purchased on 15.7.10 for Rs.2.25 lac which can
    yield me minimum 12 lac. both in my wife’s name.

    Now I tend to sell these both and purchase land and another house. Can I ?
    How much gain tax will I have to pay?
    Can I invest the return in my or son’s name?

    First of all, I have planned to SALE the plot which is in my wife’s
    name, and take a new house worth 20 lacs (15 lac from plot+5 lac new
    investment). Can I do that in my, wife or son name?

    Moreover I had also booked TWO, 1 BHK, house for Rs.2.75 lacs, total
    5.50 lacs in 2008; but the builder failed to give possession or enter
    into sale deed till date. Now he seems to enter into sale deed on
    payment of my remaining Rs.1.25 lacs in next 2 to 4 months.
    Can I keep the name of my wife in these two 1 BHKs?

    Which date to be taken for long term capital gain tax – booking date
    or the date on which the SALE DEED is done.

    I shall be highly obliged to have your proper guidance.

    Thanks & Regards,

    HASMUKH PATEL

  8. anil mehra says:

    My parents constructed a house in dehra dun in 1978 and now we are selling it. What all can I add in the cost of house for calculating the Index price. Please advise and comment ASAP.

  9. girish says:

    I am NRI. My mother in law  sold a property  recently. As a portion of property share my wife got a sum of 7 Lakhs. Her status as of now is house wife. whether this amount is taxable  to what %.
    can we invest this in further purchasing any property.

  10. d k singhal says:

    MY MOTHERINLAW PURCHASED A HOUSE IN 1976 REG.VALUE 52000/(FIFTY TWO THOUSAND)& INVESTED RS 5 LACS IN 2000-01 & 10 LACS IN 2006-07 FOR ITS RENOVATION & FF CONST.
    1 WHAT IS ITS PRESENT VALUE ?
    2 CAN I SELL IT ON HEIGHER COST THAN THE VALUE ASSESED BY YOU ?
    3 IF YES THAN HOW TO INVEST THE TOTAL AMT RECIEVED / GAIN AMOUNT SO THAT TAX MAY BE AVOIDED?

    REGARDS
    D K SINGHAL

  11. Usha Pillai says:

    Is the exemption from capital gains tax on sale of property by reinvesting in another property allowed only if the seller does not have more than one residential property in his name?

  12. anant says:

    CAPITAL GAIN ON SALE OF PROPERTY

    PLEASE CONFIRM WHICH PRICE I HAVE TO TAKE FOR CALCULATION OF LONG TERM / SHORT TERM CAPITAL GAIN

    1. READY RECKNOR PRICE OR
    2. AGREEMENT PRICE

    WAITING FOR YOUR IMMEDIATE FEEDBACK

    THANKS

    ANANT

  13. Adish Jain says:

    FOR UNDER CONSTRUCTION RESIDENTIAL PROPERTY THE PERIOD IS THREE YEARS , IT SHOULD BE FROM THE DATE OF STAMP DUTY OR THE ALLOTMENT LETTER FROM THE BUILDER AFTER COMPILATION IS CONSIDERED . KINDLY CLARIFY . IN MY CASE I SOLD PROPERTY ON 15TH FEB 2011 , MY CAPITAL GAIN AFTER DOING INDEXATION IS RS.1.72 CORERS . I BOUGHT A NEW UNDER CONSTRUCTED FLAT & THE PAYMENT OF WHICH WAS DONE FROM MY BANKS CAPITAL GAIN ACCOUNT. THE POSSESSION OF THE FLAT WILL BE RECEVIED AFTER SEPTEMBER 2014 . SO WILL IT BE EXEMPTED FROM THE INCOME TAX OR NOT , AS WE HAVE FULL FILLED ALL THE CONDITIONS BY UTLISING THE CAPITAL GAIN AMOUNT , BUT POSSESSION RECEVIED AFTER THREE YEARS AND NOT WITHIN THREE YEARS . SO AM I ELIGIBLE FOR BENEFIT OF TAX EXEMPTION.

    ADISH JAIN
    09322279109

  14. Neeta Shamdasani says:

    How is calculation of 3 yrs or 36 months considered? From date of stamp duty paid or from date of possession? I had booked my house in Jan 2007 (under construction) and got possession in August 2007. The stamp duty /franking was done in July 2007 and the registration was completed in Nov 2007. I now want to sell the house and buy a new one. Do i fall into short term capital gain bracket or can i avail of long term capital gain tax?

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