Complete Guide to Capital Gain Tax on House in India: STCG, LTCG, Calculation & How to Save Tax

When selling a house in India, it is essential to understand how capital gains tax works. The profit earned from the sale is subject to capital gains tax, categorized as Short-Term Capital Gain (STCG) or Long-Term Capital Gain (LTCG) depending on the holding period of the property. This guide explores the tax implications, calculation methods, indexation benefits, exemptions, and ways to reduce taxes, with examples.

📚 What is Capital Gain Tax on House Property in India?

Capital gain arises when you sell a property for a price higher than the purchase price. The tax treatment varies depending on how long you hold the property.

✅ Short-Term Capital Gain (STCG):

Applicable if the property is sold within 24 months of purchase.
The gain is added to your income and taxed according to your income tax slab.

✅ Long-Term Capital Gain (LTCG):

Applicable if the property is sold after 24 months of purchase.
LTCG is taxed at 20% with indexation benefits.

📊 1. STCG Calculation with Example

Formula:

STCG=Sale Price−(Purchase Price+Brokerage+Renovation/Improvement+Other Expenses)

🎯 Example:

Purchase Price: ₹50,00,000
Sale Price: ₹70,00,000
Brokerage: ₹1,00,000
Legal/Other Expenses: ₹50,000

STCG = 70, 00, 000 - (50, 00, 000 + 1, 00, 000 + 50, 000) = ₹18, 50, 000

✅ This gain of ₹18,50,000 is taxed as per your income slab.

📈 2. LTCG Calculation with Indexation Example

Formula:

LTCG=Sale Price−(Indexed Purchase Price+Indexed Cost of Improvement+Brokerage/Legal Fees)

🎯 Example:

Purchase Price: ₹50,00,000 (bought in FY 2013-14)
Sale Price: ₹1,20,00,000 (sold in FY 2023-24)
Brokerage/Legal Fees: ₹1,00,000
Cost Inflation Index (CII) for 2013-14 = 220
CII for 2023-24 = 348

✅ Indexed Purchase Price Calculation:

$\text{Indexed Purchase Price} = \frac{\text{Purchase Price} \times \text{CII of Sale Year}}{\text{CII of Purchase Year}} = \frac{50,00,000 \times 348}{220} = ₹79,09,090$

📊 LTCG Calculation:

LTCG = 1, 20, 00, 000 - (79, 09, 090 + 1, 00, 000) = ₹39, 90, 910

✅ LTCG taxed at 20%:

Tax = 20% \times 39, 90, 910 = ₹7, 98, 182

💡 3. How to Save Capital Gains Tax on House Sale in India

🛡️ 1. Section 54: Reinvest in Residential Property

LTCG can be saved if you reinvest the gains in purchasing another residential property.
Deadline: Purchase within 1 year before or 2 years after the sale.
For construction, completion must be within 3 years.

✅ Example:
If you earn LTCG of ₹40,00,000 and reinvest ₹40,00,000 in a new house, your LTCG is fully exempt from tax.

🛡️ 2. Section 54EC: Invest in Capital Gain Bonds

LTCG can be saved by investing in NHAI or REC Bonds.
Maximum investment limit: ₹50 lakh.
Deadline: Investment must be made within 6 months of the sale.
Lock-in period: 5 years.

✅ Example:
If you invest ₹30,00,000 in REC bonds, you get a tax exemption of ₹30,00,000 under Section 54EC.

🛡️ 3. Co-ownership Benefit in Capital Gains

In case of co-ownership, LTCG is divided between co-owners.
Each co-owner can claim exemption under Section 54 separately.

✅ Example:

Sale Proceeds: ₹1 crore (50-50 ownership)
Each co-owner’s LTCG: ₹25 lakh
Both can independently reinvest or invest in bonds to claim exemption.

📊 4. Should You Consider Inflation-Adjusted Return?

When dealing with LTCG, indexation benefit already accounts for inflation by adjusting the cost of acquisition and improvement.

✅ Why It’s Important:

Indexation increases the cost of acquisition based on inflation over the holding period, thereby reducing taxable gains.

💸 5. How to Deduct Broker Fees and Other Expenses

Expenses related to property sale, such as:

Brokerage
Stamp Duty
Registration Charges
Legal and Documentation Fees

✅ These can be deducted from the sale price while calculating capital gains.

📝 6. How to Calculate Capital Gains for Co-owned Property

In co-owned properties, the capital gains are divided based on ownership. Each co-owner can claim tax benefits individually.

✅ Example:

Sale Price: ₹1 crore
50-50 ownership = ₹50 lakh each
If LTCG for each is ₹25 lakh, both can claim Section 54/54EC exemptions separately.

🔥 8. FAQs on Capital Gains Tax on Property Sale in India

❓ Q1. What is the holding period for LTCG on house property in India?

✅ Answer: For LTCG, the holding period must be 24 months or more. If sold before 24 months, STCG is applicable.

❓ Q2. Can I claim exemption under Section 54 and 54EC together?

✅ Answer: Yes, you can claim both exemptions simultaneously, provided the conditions are met.

❓ Q3. Can I claim the exemption if I buy two residential properties?

✅ Answer: Under Section 54, exemption is allowed only for one residential property. However, under certain conditions (LTCG ≤ ₹2 crore), you can invest in two properties once in a lifetime.

❓ Q4. Can I deduct the cost of improvement while calculating capital gains?

✅ Answer: Yes, expenses on renovation and improvement can be indexed and deducted while calculating LTCG.

❓ Q5. Is brokerage deductible while calculating capital gains?

✅ Answer: Yes, brokerage and legal fees incurred while selling the property can be deducted.

❓ Q6. What happens if I do not invest in another property or bonds after sale?

✅ Answer: If you do not reinvest, LTCG will be taxed at 20% with indexation.

Reference:

(1) https://cafornri.com/capital-gains-tax-on-sale-of-property-by-nris-a-simple-guide/

(2) https://www.linkedin.com/pulse/how-calculate-capital-gain-property-propertywala-ugz4c

(3) https://stackwealth.in/blog/finance/what-is-capital-gain-tax-in-india

(4) https://housivity.com/blog/how-to-sell-a-property-with-an-outstanding-home-loan

(5) https://www.magicbricks.com/blog/selling-your-property-know-your-tax-implications/119488.html

(6) https://tax2win.in/guide/capital-gain-tax-in-india-ltcg-stcg

(7) https://cleartax.in/s/tax-on-liquid-funds

(8) https://hdfcsky.com/sky-learn/share-trading/short-term-capital-gain-tax

(9) https://housivity.com/blog/how-to-sell-a-property-with-an-outstanding-home-loan

Search This Blog

Capitaledge247