Capital Gains Tax on Residential Property in India

Question: Can you please help me understand income tax treatment of capital gains tax on sale of residential property in India?

Lets take an example.

  • I own a property in Delhi that has a market value of 5 lakhs INR.
  • I purchased it around 10 years back, when it was just 1 lakh INR.
  • The registered price of property at that time was 50,000 INR.
  • And now after the cost indexing and everything, its actual price has gone to 2 lakhs INR.

Now please let me know how can I treat the additional income earned by me (5-2 = 3 lakhs INR)? I suppose that the differential between the registered value (1 lakh) and current value (2 lakhs INR) which is 1 lakhs INR is taxable as long-term capital gains until I invest it somewhere but what about those 3 lakhs INR that I have earned? Is that income shown somewhere to the tax authorities and if yes, then under what head? And if not, how can I buy more real estate with those 3 lakhs (as I will have to anyway reveal the source of funds to Income Tax Department) Also, how can I utilize those 3 lakhs INR, such that I don't have to pay 60,000 INR (@20%) as tax? A bit lengthy, but that's what I need to know. Can you help please?

Answer: Yes definitely, for example, suppose that your cost of acquisition of the residential house or real estate was Rs. 1.50 lakhs INR (Rs.1 lakh plus registration expenses of Rs. 0.5 lakhs). The indexed cost now is Rs.2 lakhs (as told by you). Since the property is a long-term asset, we are concerned only with the indexed cost for tax purposes. Hence, your cost for the purposes of Capital Gains calculation would be taken as Rs. 2 lakhs if you sell that property today.

Source

Now, if you sell your property for Rs. 5 lakhs, you would accrue a Long Term Capital Gain (LTCG) of Rs. 3 lakhs. The same is taxable at 20% flat rate and the tax amount comes to Rs. 60000/-. TO save this tax, you can either buy a new residential property (provided that you don’t own more than 1 other residential property). Here, you have to invest the full Capital Gains of Rs. 3 lakhs to save your tax fully. If you invest an amount lower than Rs. 3 lakhs, you have to pay tax on the remaining amount. Say if you buy a house for Rs. 2.5 lakhs, you have to pay tax on Rs. 50000, which comes to Rs. 10000. Please note that if you sell this new house before 3 years from the date of purchase, your tax exemption, which you are availing, now would be taxed in that year of sale.

Alternatively, you can invest in Capital Gains bonds issued by the Rural Electrification Corporation or the National Highways Authority of India (NHAI). The lock in period for these bonds shall be 3 years and they carry an interest rate of 5.5% per annum. The said bonds are available at banks like HDFC Bank, ICICI Bank, etc.

You can also go for a combination of the above two options. That means you can invest partly in buying real estate and partly in bonds.

Now if you ask if interest on these bonds taxed? Also what after 3 years, do you need to pay any taxes on whatever we get or your money is safe now? Read this

The interest on these bonds is taxable at normal tax rates. TDS would also be deducted if it crosses the specified limits. The principal amount that you get back after 3 years is fully tax free and safe and you can use it in any manner you want thereafter.

Hope the above satisfies your queries. If you need more information, please let me know.

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Comments 29 comments

ethel smith profile image

ethel smith 5 years ago from Kingston-Upon-Hull

You have explained it well but these sort of things still baffle me :)


soni2006 profile image

soni2006 5 years ago from New Delhi, India Author

Yes it happens Ethel, especially when you go through heavy payment of tax on capital gains from real estate.


Sunil 5 years ago

One question. If i sell the property in April 2010 (after having bought the property in 2005) and intend to reinvest the capital gains in another property, i believe the timeframe i have is 3 years? What if the new house doesn't get done in 3 years and takes say 3 1/2 or 4 years from the date of purchase of the previous house? I suppose i would then be liable to pay the tax. How much would the tax then be? And do i need to show the sale agreement to support the fact that I was actually hoping to get the new house ready within 3 yrs?


PRasad 5 years ago

Why the inflation rate is not calculated here for 10 years


Vishal Soni 4 years ago

I have purchases a land worth Rs 3000.00 ( Three Thousand)3000 sq ft in 1967 and the house was build on in 1968 (only one floor). In 2007 (After 40 years) we constructed 2 more floors. In 2011 I want to sell only one floor which was built in 2007 as per guideline the valuation is Rs 80 lack. If we sell it at 80 lack what will be the capital gain tax


khutsafalo tibela 4 years ago

i would like to know what this Rs stands for.


CAPT ALOK DATTA 4 years ago

DEAR SI,

1)THE AGREEMENT OF MY PROPERTY IS MADE ON FEB 2008 BUT REGISTERED IN NOV 2011 SO IS THE 3 YEARS DURATION WILL BE CALCULATED FROM THE DATE OF REGISTRATION?

2)AND THE INVESTMENT OF THE CAPTAL GAIN PART ONLY TO BE DONE IN PROPERTY + NHAI in ICICI bank AS A COMBINATION EVEN i HAVE OTHER PROPERTIES?

THANKS


SUBHA roy 4 years ago

IF I INVEST 35 LAKHS OF CAPITAL GAIN MONEY TO A NEW BUSINESS WILL THAT AMOUNT i.e.35 lakhs be tax payable?


Dilip 4 years ago

We booked an apartment in Jun '06 under a construction linked installment scheme. The agreement to buy with developer was executed on 9 Dec'04. We obtained possession of the apartment on 9 Feb 09.

We sold this apartment in May '11.

Would the capital gain be treated as short term or long term. I understand there is a ruling that the date of booking is treated as purchase date. Please advise if this case is a long term capital gain under sec 54 and if I can invest the full gain in eligible 3 year capital gain bonds such as NABARD etc.


Pavithra arvind 4 years ago

I would like to know if I sell a residential land and then invest in building a house in a residential plot already owned by me will I be exempted from capital gain tax


Mahesh Upadhye 4 years ago

Hello,

I have housing loan for one house.

I also have another residencial land.

If I sell the other residential land and use the proceeds of the sale, to pay off the entire housing loan. Is the income from the proceeds of the sale, taxable ?


RAKESH KUMAR JAIN 4 years ago

If long term capital gain is reinvested in another house within 2 years, no tax need to paid (kindly confirm)? Where can I keep this LTG for 2 years (in a special account or any normal bank account). What about tax on interest earned for 2 years? Kindly reply to my E-mail address rkj951@yahoo.com .


arvind 4 years ago

i wish to sell my residintial flat and buy commercial property, am i liable to capital gains tax?


Vikas Kumar 4 years ago

I have a House property which I am inteding to sell . Out of the sale proceeds so recd I would like to invest in 2 properties , 1 to be used by me & 2nd to be used for renting purposes . Will I be able to get exemption for both the properties assuming both are purchased within 1 year of sale .


naveen33 3 years ago

i have sold a property on 15th Feb 2013 for rupees 40 lac possession of property given. the said property is a residential house came from will of my grand mother which was originally bought for rupees 50000/-, construction done for five lac in 1985. the sale proceed are rupees 25 lac received on 15th feb2013 and i have also paid for registry charges which was 2,50,000 thousand rupees mentioned in registered sale deed. rupees fifteen lac received via pdc for 5 lac on 15th April 2015 and 10 lac on 15th Nov 2015 mentioned in registered sale deed.

when will capital gain arise and at what amount?


soni2006 profile image

soni2006 3 years ago from New Delhi, India Author

Hi Naveen, capital gains tax will arise on the amount you have taken in your bank account till now, as everything is white and on paper, CG tax will be effective for this financial year on 19 lacs and 50 thousand rupees that you have earned from selling the above mentioned property. CG tax on Rest of the income will be effective after your PDCs for 15 lacs will get cleared, I hope this helps.


Sanjay S 3 years ago

Hi,

I bought this residential property in Sept'10 and wish to sell it in Sept'13 and buy another property at a value higher than capital gain within 2 years. In this case, my understanding is that I can avoid LTCG tax. However I have entered into agreement for one more residential property in Sept'09 and I am expecting possession in Jun'13 which I wish to keep for very long period. My query is that will this second property has any impact on my first property LTCG exemption ? In other words, is it that LTCG exemption is possible if I have only one property or it has no relation to no of properties which any individual holds ?

Thanks in advance.


CK 3 years ago

Can somebody guide me if I can sell a residential property in India, and repatriate the funds to Singapore for investment in a residential property in Singapore.

Would there be a LTCG that will accrue at the time of the sale of the property in India?

Thanks


SILVASTER 3 years ago

I have purchased a flat in 2009. The Actual cost paid as per the sale agreement was 45 Lakh where as its registered value is 16 Lakhs only. Now i am selling this flat for Rs. 67 lakhs as per the sale agreement and the registered value will be Rs. 55 Lakhs. Kindly let me know the long term capital gain is calculated on sale agreement value or sale deed value.


rkjumle 3 years ago

I have two properties. one is flat and another is plot which are purchased before three years. I intend to sale both the property and purchase one flat within the sold amount of both properties. Please let me know as to whether I can save an income tax on capital gain of the porperties.


rajadholan@gmail.com 3 years ago

I purchased a property of Rs.50 lakh and for that I paid Registration cost of Rs.10 lakh (because the land was over valued by the govt.)

Now, after one year govt. acquire some land for some project of govt. and my land falls in that area.

I was not willing to sell my land but govt acquired it.

Now, govt pay me Rs.1.5 Cr as my total compensation.

What would be my total taxable amount and taxfree amount?


Indra Singh 3 years ago

I bought a residential Property in 2000 for 16 Lacs and sold it in May 2013 f0r 75 Lacs . I bought a second Residential property in Nov 2012 and paid 45 Lacs till Apr 2013 against it . The total cost of this property is 1.4 Crore to be paid in installments till Mar 2015. I intend to invest all the gain amount of 59 Lacs towards the new property. My question is :

1. Will The amount of 45 Lacs ,already paid before the sale of the first property , be counted as paid from the sale proceeds of the second property?

2. Do I have to keep the sale proceed money in one particular Bank and show that I have invested all of it from that account only??

3. For NRI s Is there any different set of rules ? or the same applies to all ?


Harish 3 years ago

I have a plot which I wish to sell for Rs 15 lakhs in Aug 2013. The same was purchased in 1987 for Rs 30 thousand. Can I purchase another house in the name of my wife to save tax? At present I own only one residential house.


soni2006 profile image

soni2006 3 years ago from New Delhi, India Author

Yes Harish your wife can buy a flat in her name. There will be no capital gains on you.


Ananth 3 years ago

I have purchased a flat in 2007. The Actual cost paid as per the sale agreement was 42 Lakh where as its registered value is 10.9 Lakhs only. Now i am selling this flat for Rs. 61 lakhs as per the sale agreement and the registered value will be Rs. 45 Lakhs. Kindly let me know the long term capital gain is calculated on sale agreement value or sale deed value.


soni2006 profile image

soni2006 3 years ago from New Delhi, India Author

Ananth if you are going to purchase another flat with this money then there will be no capital gains tax.


karthick 2 years ago

I have purchase land 6.5lakhs in 2006 in registered value , Actual cost paid as per the sale agreement was 12 Lakhs Only ,Now I am selling for this land in 28 lakhs as per the sale agreement Value What would be my total taxable amount and taxfree amount?


sonia 2 years ago

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Mohit 23 months ago

Download Capital Gain Calculator from Google Play Store https://play.google.com/store/apps/details?id=com....

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