Category: Income Tax
Short-Term Capital Gain (STCG): If the property is held for 24 months or less, the gain is classified as short-term and taxed at slab rates applicable to the taxpayer.
Long-Term Capital Gain (LTCG): For properties held for more than 24 months, LTCG applies.
If property sold on or after 23 July 2024:
The taxpayer can opt for a flat 12.5% tax (without indexation) or
20% with indexation, but only if the property was acquired before 23 July 2024.
This "grandfathering" allows those who acquired property earlier to still benefit from indexation to reduce taxable gain. Newer acquisitions are taxed at 12.5% without indexation.
STCG: Sale price – (Cost of acquisition + Improvement costs + Transfer expenses).
LTCG with indexation: Use the Cost Inflation Index (CII) to adjust acquisition and improvement cost. Computed as:
Indexed Cost = Original Cost × (CII of year of sale / CII of year of acquisition)
For individuals or HUFs selling a long-term residential property, gains are exempt if reinvested as follows:
Purchase within 1 year before or 2 years after the sale, or
Construction within 3 years of sale.
The exemption amount is the lower of: capital gain or cost of new property.
Cap of ₹10 crore applies from Assessment Year 2024–25 (i.e. from 1 April 2024).
Once-in-lifetime option: Reinvest in up to two residential properties (if LTCG ≤ ₹2 crore).
If not reinvested by the return deadline, unutilized gain must be deposited in the Capital Gains Account Scheme (CGAS) and used within the timelines, else it becomes taxable.
Eligible if LTCG from any asset (excluding a house) is used to buy residential property following similar timeframes as Section 54.
Only the portion reinvested is exempt; uninvested gain remains taxable.
LTCG can be exempted if invested within six months in NHAI or REC bonds.
Lock-in period: 5 years; early withdrawal not permitted.
LTCG from sale of agricultural land used by taxpayer/family for at least 2 years can be exempted if reinvested in another agricultural land within 2 years; sale of new land within 3 years disqualifies exemption.
There are other exemptions like Section 54D, 54EE, 54G, etc., but their applications are usually niche—withdrawal from special investments, shifting industrial undertakings, etc. Refer to comprehensive tables in official sources.
Introduced in Assessment Year 2018–19 (Finance Act, 2012).
Allows tax authorities to deny benefits of arrangements lacking commercial substance and designed primarily for tax avoidance.
Enacted to prohibit transactions where property is held in name of someone (benamidar) but paid by another (beneficial owner).
Violations will lead to confiscation and penalties (up to 7 years jail, 25% penalty).
Income arising from assets transferred without adequate consideration, including gifted property, is taxable in hands of the donor (not recipient).
Recent ITAT ruling confirmed this principle, even for inter-spousal gifts.
Tax department flags underreporting in property transactions (SFT) and Annual Information Statement (AIS).
Jointly held property sales sometimes double-counted—taxpayers must verify and correct AIS entries to avoid disputes.
ITAT Mumbai (2025): Tax reduction to ₹33,296 on LTCG from a ₹70 lakh house sale, thanks to accurate indexation and documentation.
ITAT Mumbai (husband-wife duo): Allowed joint purchase used for exemption under Section 54 — joint ownership was accepted for reinvestment exemptions.
ITAT Chennai (Aug 2025): Allowed Section 87A rebate (tax rebate for low income) on LTCG, despite Budget 2025 exclusion—taxpayer-friendly ruling.
| Scenario | Tax Type / Rate | Exemption Option | Key Conditions/Tips |
|---|---|---|---|
| Held ≤ 24 months | STCG at slab rate | None | No exemptions; tax depends on your slab |
| Held > 24 months; acquired pre-23 Jul 2024 | LTCG: 20% (with indexation) or 12.5% (no indexation) | Section 54 / 54F / 54EC etc. | Choose whichever gives lower tax |
| Held > 24 months; acquired after 23 Jul 2024 | LTCG: 12.5% (no indexation) | Section 54 / 54F / 54EC etc. | No indexation benefit; still eligible for exemptions |
| Gifted property (benami or among relatives) | Clubbing applying to donor | None | Clubbing provisions apply |
| Schemes lacking commercial purpose | GAAR-like denial of benefit | None | Avoid artificially structured transactions |
Taxable gains on property sale depend on holding period (STCG vs LTCG).
LTCG on long-held property offers options: flat 12.5% (no indexation) or 20% (with indexation for older acquisitions).
Exemptions under Sections 54, 54F, 54EC, and 54B allow significant tax relief for reinvestment in real estate or eligible bonds.
Strict compliance required, including timelines, deposit schemes (CGAS), and joint ownership documentation.
Anti-avoidance rules like GAAR, Benami Act, and clubbing provisions are in place to curb misuse.
Always maintain proper documentation and timely filing; recent tribunal rulings affirmed relief in favorable circumstances.