Gains from the sale of property in India are subject to capital gains tax, and the treatment depends on how long the asset is held. Properties sold within two years of purchase are considered short-term capital assets, and the resulting profits are taxed at the seller’s applicable income tax slab rates. In such cases, no indexation benefit is available.
If a property is sold after two years, the profit is classified as long-term capital gains (LTCG). Under the new regime, LTCG from the sale of immovable property is taxed at 12.5% without indexation. However, individual taxpayers and Hindu Undivided Families (HUFs) can claim exemptions under Sections 54 and 54F, provided the gains are reinvested into residential property.
Case Study: How One Seller Avoided a ₹10.40 Lakh Tax Bill
Tax advisory platform Tax Buddy recently shared the case of Ramesh, a Hyderabad resident who sold his property in May 2024. The transaction generated a long-term capital gain of ₹50 lakh, which meant a tax liability of ₹10.40 lakh at the 12.5% rate.
Since Ramesh had not reinvested in another house by the end of the financial year, he believed he had no option but to pay the tax. However, with expert guidance, he was able to bring down his liability to zero.
The Solution: Capital Gains Account Scheme (CGAS)
Ramesh was advised to use the Capital Gains Account Scheme (CGAS), a government-backed facility designed for taxpayers who wish to claim exemptions under Section 54/54F but have not yet identified or purchased a new property before filing their returns.
Here’s how it worked:
- By depositing the unutilised capital gains into a CGAS account before the ITR filing deadline (15 September 2025), the amount was treated as reinvested.
- This secured the exemption, while giving Ramesh up to two years to purchase or three years to construct a new residential property.
- His ITR was filed on time, and the exemption was locked in—without rushing into a hasty real estate deal.
Outcome
- Tax saved: ₹10.40 lakh
- Extended timeline: 2 years (purchase) / 3 years (construction)
- Flexibility: Freedom to choose the right property instead of buying under pressure
Why This Matters for Taxpayers
This case underlines the importance of timely tax planning. Many sellers miss out on exemptions simply because they do not reinvest or deposit their gains into CGAS before the due date.
For property owners selling this year, the 15 September 2025 deadline is critical—not only for filing income tax returns but also for preserving exemptions on capital gains. Missing this date could mean a hefty and avoidable tax outgo.
Understanding the Rules on Property Sales
- Short-Term Capital Gains (STCG): If sold within 2 years → taxed at slab rate, no indexation.
- Long-Term Capital Gains (LTCG):
- Properties acquired and sold before 23 July 2024 → taxed at 20% with indexation.
- Properties acquired and sold after 23 July 2024 → taxed at 12.5% without indexation.
- Properties acquired before 23 July 2024 but sold later → taxpayers can choose between the two options, whichever is more beneficial.
- Losses: Can be set off and carried forward for up to 8 years, provided the ITR is filed within the deadline.
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