How to save tax on long term capital gain from sale of house property

How to save tax on long term capital gain from sale of house property

How to save tax on long term capital gain from sale of house property

We all know that the real estate investment provides good returns over a long term. However during this process we should know how to save tax on long term capital gain from house property sale by looking at various options for tax exemptions.

What is long term capital gain from house property refers to?

If a house property is sold < 3 years from the date of purchase, then, it is short term capital gains. Property sold after 3 years (or 36 months) from date of purchase comes under the long term capital gains. The tax rate on long term capital gain is 20%.

How the long term capital gain from house property is calculated

Long term capital gain is not simply computing the difference between sale value minus purchase value. The value of money ten years back, say Rs 1,000 is not same as today. Hence while arriving capital gains on property sale, the indexation would be done. Indexation is done by computing the past value to present value considering cost inflation year on year. The cost inflation index (CII) needs to be referred to arrive at the present value of the past investments.

E.g. if you have purchased a house property in year 1995 for Rs 10 lakhs and sold for Rs 40 lakhs in 2012, the value of CII in 1995-96 was 281 and 2011-12 is 785. The present value after indexation is 10 lakhs x 785 / 281 = Rs 28 lakhs (approx). The long term capital gain on house property is the difference between the sale value i.e. Rs 40 lakhs minus Rs 28 lakhs = Rs 12 lakhs. Income tax on this would be 20% i.e. Rs. 12 lakhs x 20% = Rs 240,000

How to get exemption on long term capital gain from house property:

1) Buy a new property or construct a new house (Exemption as per Section 54)

If you have sold a house property and have a long term capital gain, you can get exemption by re-investing the amount in a new or another property from the sale proceeds.

  • The exemption can be sought by purchasing the new residential house within a period of one year prior to or two years after transfer of the original house.
  • In case of under construction house, the new construction of house needs to be completed within 3 years from the date of original transfer of house.

I feel this is one of the best methods of getting exemption for long term capital gain from house property sale

2) Open a CGAS

You can open capital gain account with any Government owned bank and deposit the capital gains in this account and file your income tax return before 31st July and save long term capital gain tax.

  • This method is generally used to park the money, till you find a new house.
  • Once you find a new house, withdraw this money and purchase the house any surplus remaining would attract long term capital gain tax.
  • However there is stipulated period for this. You need to buy a new house within 2 years or construct a house in 3 years from the date of transfer of property.

3) Save in 54 EC bonds

In case you are not investing in new property, there is another option to save tax is by investing in bonds as per section 54 EC. These bonds are issued by National Highway Authority of India and Rural Electrification Corporation Ltd. However use this as last option for exemption of long term capital gain from house property sale as the returns would be very low.

  • These bonds are issued for a minimum of Rs 10,000 and in multiples of Rs. 10,000 and the period of investment is 3 years.
  • The maximum amount that can be invested in a financial year is Rs 50 lakhs.
  • If you are investing part of your long term capital gains into these bonds, you would get exemption only to that extent and balance surplus amount would attract tax.
  • The coupon interest rates for such bonds are 6% annually.
  • If you withdraw such bonds before 3 years, you need to pay LTCG tax.

How to save tax on long term capital gain from house property sale


Conclusion: Thought investing in real estate is a good long term investment option, while you are selling your house property, try these exemptions to avoid tax for long term capital gains.

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Suresh KP


  1. Sir I am willing to sell my house , I was purchased this property in 1985, I will get appr. 1.5 crore if I sell it. After this I have one plot I want to built it for my residence, it would cost near 25 lacks and I want to purchase a shop it will go around 20 lacks. Now remain 1 crore, can I give 50 lacks to my son, and another 50 lacks I want to fix deposit for monthly payouts for my daily expenses, can it will be fair practice, will I save tax by this procedure ?

  2. We sold inherited house property in December , 2015for 48 lacs in small parts of six registeris ,we are five partners in the property,please let me know how I can save paying the capital gain tax on this transaction 

  3. Hi 

    We had a capital gains of 18.3 Lacs from a inherited property sale , which is invested in ICICI prudential elite wealth retirement II plan, with a lock in period of 5 years. Annual payout of 5 lacs for 5 years. Can this bond certificate be used to waive capital gains on the property. The fund seems to investing in debt funds.  

  4. I am buying a property at 80 L . i had given 1 lac rupees as a tokan or bayana 08/08/2015. and rest 79 lac will pay at a time for sell deed (20/09/2015).

    My question is that “shall i pay 1% tds on 1 lac is now and 79K at the time of sell deed, or complete 80K will at the time of sell deed”.

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