24-Jan-2024 Ways to reduce Tax on Sale of House property

#propertysale #realestate #legalcompliance #taxexemptions #investmenttips

Ready to sell your home? APMH's quick guide is here to make tax talk simple. Learn about long-term gains, short-term gains, and the secrets to legally save on taxes. Your house, your money—get the lowdown with APMH for stress-free selling!

• With the rising number of real estate transactions and moving population, it is of high concern for most of us to know about the tax implications on the sale of House property.
• Due to increasing complexity in tax structure, it becomes difficult to keep an eye on all the compliances and as well as its applicability. Thus, due to a lack of awareness of the benefits the tax regime allows us, we end up paying more taxes.
• Thus, at APMH we have summarized that if a person sells a house property, what are the tax implications and ways to reduce taxes legally as allowed under the Income tax act and save hard-earned money.!!


Q. What’s Capital Gain and its Types of Capital Gain regarding Residential House Properties: 
A. When any capital asset (here residential house property) is sold then capital gain arises and there is income tax on such gains.
     There are two types of Capital Gain depending on the period of holding the asset:
1. Long Term Capital Gain: 
     When a residential house property that is held for more than 24 months, i.e. 2 years, is sold then it is Long Term Capital Gain.
2. Short-Term Capital Gain
     When a residential house property which is held for less than 24 months, is sold then it is Short Term Capital Gain.


Capital Gain is calculated as under:

ParticularsLong Term Capital GainShort Term Capital Gain
Sales ConsiderationActual Consideration – *Deductible expensesActual Consideration – *Deductible expenses
Less: *Indexed Cost of acquisition / Cost of Acquisition


Cost of Acquisition * CII of year of sale / CII of year of purchase


Cost of Acquisition

Less : *Indexed Cost of Improvement


Cost of Improvement * CII of year of sale / CII of year of  improvement



*ExemptionsInvestment made              --------
Capital GainLong Term Capital GainShort Term Capital Gain

*Indexed Cost of Acquisition / Improvement
The cost of acquisition and improvement is indexed by applying CII (cost inflation index). It is done to adjust for inflation over the years of holding the asset. This increases one’s cost base and lowers the taxable capital gains.


Tax on Such transfer
Long-term Capital gain - 20%
Short-Term Capital Gain - Normal slab rate


Exemption benefits available for the Sale of Residential house property to save taxes are as under:

Particulars             Section 54                              Section 54EC
Applicable toResident Individual or HUFAny assesses
Transferred assetLand or building or bothLand or building or both
Type of Transferred AssetLong Term Capital AssetLong Term Capital Asset
Investment to be madeResidential House Property

Bonds issued by National Highway Authority of India (NHAI) , 

Rural Electrification Corporation Limited (RECL) etc.

Maximum Amount ExemptedAmount Invested (subject to Capital Gain)

Cost of new asset x Capital Gain / Net consideration (maximum up to the capital gain)


*For Section 54EC maximum amount of investment Rs.50lacs 

Lock in period for new asset3 Years*For Sec54EC: lock in period is of 5 years
*Capital Gain Account Scheme [CGAS] availabilityYESNO


*Capital Gain Account Scheme – There may be any taxpayer who is unable to re-invest the capital gains in modes as specified in the Act before the filing of return of income or before the expiry of time to invest the gains. To address this, to enable the taxpayer to park his funds till they are invested for the prescribed purpose, the concept of Capital Gains Account Scheme (CGAS) was introduced. They can deposit such gains which are not able to deposit under the said account in any Schedule Banks.

There are a few Additional Terms and Conditions for availing the above benefits.

*T &   C         Section 54         Section 54EC
1Purchase of another Residential Property within 1 year before or 2 years after the transfer of the Property sold   Investment to be made within 6 months from the date of transfer


Construction of a Residential house Property within a period of 3 years from the date of transfer/sale of property

Provided that new property shall not be transferred within 3 years and if sold then exemption shall be reversed.


If new asset is sold within 5 years, amount earlier exempted under this section will be reduced from its COA to calculate capital gains thereon 





If Capital gain is less than or equal to Rs. 2crores then two residential properties can be purchased. This exemption can be availed once in a lifetime



Section 54EC: Bonds issued by following organisation are eligible for exemption. 








If the cost of new asset exceeds Rs. 10 crores, the amount exceeding Rs. 10 crores shall not be considered for exemption. ------


TDS compliance to be observed by the purchaser of the Residential House Property: -


Section 194IA

When a buyer buys immovable property (i.e., a building or part of a building or any land other than agricultural land) costing more than Rs 50 lakhs, the buyer has to deduct tax at source (TDS) at the rate 1%of the total amount, when the buyer pays the seller.


Taxation for NRIs

For NRI whenever Residential House property is sold in India following are the tax implications:

ParticularsLong TermShort Term
Tax Rate*20 %Income tax slab rate


*Rates plus surcharge and cess if applicable.


NRIs can also take benefit of the exemptions provided above i.e., under sections 54 and 54EC


These are the ways to grab benefits provided under Income tax laws and reduce your income tax liabilities.!!!


Thank you Readers for your Time and Attention. If you have any questions or suggestions, please don't hesitate to reach out on [email protected]. Your input is invaluable.

Related #Services

We belive in delivering quality and specific services as per the business requirements, which will help client getting a clear direction for growing its business.

#Ready to dive in? connect us now.