You may have sold or are planning to sell your residential house property for various reasons. Either you have permanently shifted out of the city, State or country, in need of funds to buy another residential house property, looking to invest in newly constructed house and wanting to dispose off old ancestral property.
Whatever the reason may be, but the first thought that struck your mind was about Long Term Capital Gain and its tax. I have put down all the calculations with easy examples to make it easier for you to just go ahead and sell, invest and save tax on such Long Term Capital Gains.
Any increase in the price of an asset as compared to its purchase price is a gain. This Gain on sale of Property is called Capital Gain. Capital Gain on Property sold after 2 years of its purchase date is Long Term Capital Gain. If sold within 2 years of its purchase, the gain arising therefrom is Short Term Capital Gain. Property can be Residential House Property or any Land or Building or Both.
Long-Term Capital Gain Calculator
Ready to make your Residential House Investment work for you and save on taxes?
Example Scenario:
- You sold a house for Rs. 60 Lacs.
- Indexed Cost of Acquisition: Rs. 25 Lacs.
- Long Term Capital Gain: Rs. 35 Lacs.
Tax Calculation:
Long Term Capital Gain Tax (20%): Rs. 7 Lacs.
Exemption Strategies:
- Invest in eligible schemes to save on long-term capital gain tax.
- If your new residential house costs Rs. 30 Lacs, claim an exemption of Rs. 30 Lacs u/s 54.
Net Long Term Capital Gain: Rs. 5 Lacs
Summary Table:
| New Residential House Cost | Exemption Claimed (u/s 54) | Net Long Term Capital Gain | Tax on Long Term Capital Gain |
| Rs. 30 Lacs | Rs. 30 Lacs | Rs. 5 Lacs(35-30) | Rs. 1 Lac(5L*20%) |
| Rs. 40 Lacs | Rs. 35 Lacs | NIL | NIL |
Common Terms of Capital Gain Explained
Capital Gain Tax Rates
Long Term Capital Gain on sale of Property is taxed at flat 20%
Short Term Capital Gain on the sale of Property is taxed at the slab rate applicable to you.
Sale Consideration
The amount realized on the sale of the property is a Sale Consideration
Cost of Acquisition
The original cost at which the property is acquired.
How to Calculate Long Term Capital Gain on Property on Ancestral or Inherited Property
For the cost of acquisition, the Inherited price and date of the previous owner are also taken into consideration.
Capital Gain Calculator with Indexation
I. Indexed Cost of Acquisition
The cost that you are ready to pay today to buy the property. Indexation is calculated after taking Cost Inflation Index as notified by the Government for every year relevant to compute Long Term Capital Gains.
Formula: Indexed Cost of Acquisition = (Cost of Acquisition * Cost Inflation Index of Sale Year) / Cost Inflation Index of Purchase Year.
Example,
- Original Cost (2012): Rs. 50 Lacs.
- Cost Inflation Index (FY 2012-13): 200.
- Cost Inflation Index (FY 2023-24): 348
Indexed Cost of Acquisition (FY 2023-24): Rs. 87 Lacs.( 50*348/200)
II. Deduct brokerage, advertising, and legal expenses from the sale consideration. Rs. 1Lac
III. Account for Renovation/Improvement:
If you spent Rs. 3 Lacs in FY 2017-18 (Cost Inflation Index: 272) on renovation, deduct indexed cost of improvement from the sale price. Thus, Indexed Cost of Improvement will be Rs. 3,83,823/-
| Particulars | Amount(Rs.) |
| Full Sale Price (Value of Consideration) | 1,35,00,000 |
| Less: Expenditure incurred, such as transfer cost, advertisement, and brokerage | (1,00,000) |
| Less: Indexed Cost of Purchase (Acquisition Cost of the Property) | (87,00,000) |
| Less: Indexed Cost of Property Improvement (Expenses incurred after buying the Property) | (3,83,823) |
| Long Term Capital Gain | 43,16,177 |
For NRI, it’s important to deposit the sale proceeds in your NRO account, from where you can remit the amount to your NRE after payment of Long Term Capital Gain Tax applicable in India.
Investment-Based Exemption: Sec 54
If you’ve recently sold a residential house property held for more than 2 years, here’s a golden opportunity for investment-based exemption under Section 54.
Conditions to Claim Section 54 Exemption:
- You must be an Individual or HUF.
- The capital gain should be from the sale of a residential property held for more than 2 years.
- Invest in another residential house property, not commercial.
- Avoid being in the business of selling residential houses.
- The house should be your own, reflected in your ITR under “Income from House Property.”
Investment Options:
- For capital gains up to Rs. 2 Crores, invest in 2 residential houses (a once-in-a-lifetime opportunity).
- Maximum exemption is Rs. 10 Crores.
- If capital gains exceed Rs. 2 Crores, invest in only 1 residential property.
Example1:
| Scenario | Investment Limit | How many times |
| Up to Rs. 2 Crores | 2 residential houses | Once in a lifetime |
| More than Rs. 2 Crores | 1 residential house | No such limit |
Example 2:
Double Delight: Exemption for 2 Houses!
- Long Term Capital Gain: Rs. 1.5 Crores.
- Purchases:
- House 1: Rs. 1 Crore.
- House 2: Rs. 50 Lacs.
Exemption in FY2023-24:
- Full exemption on capital gains.
Lifetime Opportunity:
- Claiming exemption for 2 houses is a once-in-a-lifetime chance.
Scenario Next Year (FY2024-25):
- Long term capital gain: Rs. 1.6 Crores.
- Investments:
- House 1: Rs. 1 Crore.
- House 2: Rs. 60 Lacs.
- Benefit:
- Claim exemption for one house only, as the 2-house benefit was utilized in 2023-24. So, better to claim exemption for House 1 of Rs. 1 crore as exemption to save higher Long Term Capital Gain Tax.
| Financial Year | Capital Gain | Number of Houses | Exemption Claimed |
| FY2023-24 | Rs. 1.5 Crores | 2 | Full Exemption |
| FY2024-25 | Rs. 1.6 Crores | 2 | One House |
Timeframe for Investment:
- Options: 1 year before, 2 years after, or 3 years after the date of transfer.
- Retain the new property for 3 years; otherwise, earlier exempted capital gains will be taxed as short-term capital gain.
- Invest by the due date of filing the ITR (31.07.2024 or 31.10.2024).
- Alternatively, use the Capital Gains Account Scheme in a nationalized bank for 3 years if unable to either purchase or construct a new residential house property before the due date.
Cautionary Note:
- Misutilized or unutilized amounts in the scheme will be taxed in the 3rd year from the date of transfer.
Conclusion
If you are an Individual or HUF, have sold a Residential House Property, on which Long Term Capital Gain is computed, you can save tax on such Long Term Capital Gain by investing in another residential house property and save taxes.
If you have sold a residential house property and you want to save tax on Long Term Capital Gain, send your details to incometax@tanujagupta.com and your Income Tax Return will be filed in less than half an hour.
You can also contact me here
FAQ’s
How do you calculate long term property gain tax?
Long Term Capital Gain on sale of Property is Sale Price Less: Cost of Transfer(Brokerage, Advertisement, Legal Expenses incurred during sale of House) Less: Indexed Cost of Purchase Less: Indexed Cost of Improvement(Renovations done)
How much capital gain is tax free on property?
The entire amount of capital gain or amount invested in new house whichever is less is tax free.
If your Long Term Capital Gain on sale of property is upto Rs. 2 Crores, then you can invest in upto 2 new Residential Houses, which is a once in a lifetime exemption available.
But If your Long Term Capital Gain on sale of property exceeds Rs. 2 Crores, then you can invest in only in 1 new Residential House.
What is the tax on sold property?
Property if sold after holding it for more than 2 years, 20% Long Term Capital Gain Tax will be applicable. Short Term Capital Gain on sale of property will be taxed as per your tax slabs.