Immovable Property or Land is considered to be a Capital Asset as per the Income Tax Act. A taxpayer who sells an immovable property or land should report such income or loss as Capital Gains it in the Income Tax Return and pay tax on it at the applicable rate. Capital Gain Tax on the sale of property or land is determined on the basis of the nature of the long term or short term.
The Capital Gain can be of two types depending on the period of holding of the capital asset.
Long Term Capital Gain (LTCG): If the taxpayer sells an immovable property or land held for more than 24 months, gain or loss on such sales is a Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL).
Short Term Capital Gain (STCG): If the taxpayer sells an immovable property or land held for up to 24 months, gain or loss on such sale is a Short Term Capital Gain (STCG) or Short Term Capital Loss (STCL).
The holding period for immovable property i.e. land, building and house property was 36 months up to FY 2016-17. However, the period of holding is reduced to 24 months FY 2017-18 onwards.
Tip
The holding period for immovable property i.e. land, building and house property was 36 months up to FY 2016-17. However, the period of holding is reduced to 24 months FY 2017-18 onwards.
Income Tax on Sale of Immovable Property
Income Tax on the sale of immovable property i.e. land, building, or house property is similar to the tax treatment of other capital assets.
Calculation of Long Term Capital Gain tax on sale of property in India
The income tax rate for LTCG on sale of property in India is 20% with Indexation benefit. Using the indexation benefit, the taxpayer can adjust the cost of the asset with the CII (Cost Inflation Index) List issued by the Income Tax Department. The Indexed Cost of Acquisition is used to calculate the Capital Gains. The cost of Improvement is the expense incurred by the taxpayer for making addition or improvements to the capital asset. The taxpayer can also calculate the Indexed Cost of Improvement.
Particulars
Amount
Sale Consideration
XXXX
Less
Transfer Expenses
(XXXX)
Less
Indexed Cost of Acquisition
(XXXX)
Less
Indexed Cost of Improvement
(XXXX)
Less
Exemption u/s 54, 54EC, 54F
(XXXX)
Long Term Capital Gain
XXXX
Sale Consideration = In the case of immovable property, as per Section 50C of Income Tax Act, sale consideration should be the sale value of capital asset or value adopted by stamp duty valuation authority whichever is higher.
Transfer Expenses = expenses incurred exclusively for the sale of the capital asset.
Indexed Cost of Acquisition = Cost of Acquisition * (CII of year of Sale / CII of year of Purchase)
Indexed Cost of Improvement = Cost of Improvement * (CII of year of Sale / CII of year of Improvement)
Calculation of Short Term Capital Gain tax on sale of property in India
The Short Term Capital Gain is taxed as per the slab rates. There is no indexation benefit in the case of a Short Term Capital Gain. Further, the exemption under Section 54 to 54F is also not available. Thus, the Capital Gain is calculated on the basis of the cost of acquisition, cost of improvement, and transfer expenses.
Particulars
Amount
Sale Consideration
XXXX
Less
Transfer Expenses
(XXXX)
Less
Cost of Acquisition
(XXXX)
Less
Cost of Improvement
(XXXX)
Short Term Capital Gain
XXXX
Carry Forward Loss on Sale of Immovable Property
The taxpayer can set off Short Term Capital Loss (STCL) against both Short Term Capital Gain (STCG) and Long Term Capital Gain (LTCG). They can carry forward the remaining loss for 8 years and set off against STCG and LTCG only.
The taxpayer can set off Long Term Capital Loss (LTCL) against Long Term Capital Gain (LTCG) only. They can carry forward the remaining loss for 8 years and set off against LTCG only.
Capital Gains on Sale of Property before Possession
Let’s understand the situation first: You have booked a property which is still under construction. So essentially you have acquired the rights for the under-construction property and not the property itself. Now before the construction completes, you want to sell the rights. Now the first question that comes to your mind is how do I calculate the capital gains for the same and what would be my tax liability?
Example
Darshil paid INR 20 Lakh on 01/01/2012 to book a house in a housing scheme. The scheme will give possession of the property on 01/01/2016. Darshil finds a better scheme and wants to sell the rights in this scheme. The taxability of the capital gains will depend on the time gap between the date of booking of the property and the date of agreement to transfer the rights in the under-construction property.
Then it will result in short term capital gains since the holding period is less than 36 months.
Indexation benefit is not applicable
The capital gains will be taxable at the normal slab rate applicable to the individuals.
Since it will be short term capital gains, no capital gain exemption is available to save the capital gains tax.
If Darshil transfers the rights after 01/01/2015
Then it will result in long term capital gains since the holding period is more than 36 months
Indexation benefit is applicable to the amount payable to the builder, stamp duty, and also registration fees.
The capital gains will be taxable at 20%
Since it will be long term capital gains, the exemption under section 54F and Section 54EC will be available.
You can not claim the exemption under section 54 because the exemption is for the purchase of new residential property against the sale of existing residential property. Here what you are selling is a right to acquire a residential house and not the residential house itself. Many people treat the sale of an under-construction property at par with a residential house for the purpose of claiming long term capital gain exemption which is incorrect and may result in scrutiny.
ITR Form & Due Date for Income from Sale of Immovable Property
ITR Form: Taxpayer should file ITR-2 (ITR for Capital Gains Income) on Income Tax Website since income on the sale of immovable property such as land, building, or house property is Capital Gains.
Due Date – 31st July of the Assessment Year
Up to FY 2019-20 – 31st July 31st July – for taxpayers to whom Tax Audit is not applicable 30th September – for taxpayers to whom Tax Audit is applicable
FY 2020-21 Onwards 31st July – for taxpayers to whom Tax Audit is not applicable 31st October – for taxpayers to whom Tax Audit is applicable
Tax Audit: Since the income on the sale of unlisted stock is a Capital Gains Income, the applicability of tax audit under Section 44AB need not be determined.
FAQs
What is section 54F under capital gains?
Section 54F, exemption of capital gain is made available in the situation of long term capital assets transfer against the investment one makes in a residential house. he capital gain that arises for transferring any long term capital assets that is other than the residential house.
How can I save capital gains tax on the sale of my property?
By Investing in Capital Gains Account Scheme and while filing your return on Income Tax Portal you can claim this as an exemption from your capital gains, you don’t have to pay tax on it. However, you must invest this money you have deposited within the period specified by the bank, if you fail to do so, your deposit shall be treated as capital gains.
How do you calculate long term capital gains on sale of property?
Long term capital gain is calculated as the difference between net sales consideration and indexed cost of the property. The benefit of indexation is allowed to set off the impact of inflation from gains made on the sale of the property so that the actual gains on the property will be taxed.
Got Questions? Ask Away!
Hey Manav,
You can claim the lower of the following amount as a deduction u/s 54:
Amount invested in the new house property
Capital gains
If the purchase of the new house property is:
Purchased within 2 years of the date of sale
Constructed within 3 years of the date of sale
Provided the following conditions are fulfilled:
You cannot sell the new house property for 3 years from the date of purchase
If not able to buy new house property before filing the Income Tax Return, you can deposit the amount in Capital Gains Deposit Accounts Scheme to claim the exemption
Hey Manav,
You can claim the lower of the following amount as a deduction u/s 54:
If the purchase of the new house property is:
Provided the following conditions are fulfilled: