In India, capital gains tax is applied to the profit or gain realized from the sale of a property or an investment. For property transactions, these gains are categorized into short-term capital gains (STCG) and long-term capital gains (LTCG) based on the holding period of the property.
As of my last update in April 2023, here's how capital gains on property are taxed in India:
Short-Term Capital Gains (STCG)
If a property is sold within 2 years of purchase (the period might vary for under-construction properties), the gains are considered short-term.
STCG is added to the taxpayer's income and taxed according to the applicable income tax slab rates.
Long-Term Capital Gains (LTCG)
If a property is sold after being held for more than 2 years, the gains are considered long-term.
LTCG is taxed at a rate of 20% with indexation benefit. Indexation adjusts the purchase price of the property for inflation, effectively reducing the taxable gain.
Exemptions on LTCG
There are certain exemptions available under sections 54, 54F, and 54EC of the Income Tax Act, which can help reduce LTCG tax liability, provided certain conditions are met. These include:
Section 54:
Exemption on LTCG from the sale of a residential property if the gains are reinvested into purchasing or constructing one or two new residential properties in India (subject to conditions and limits).
Section 54F:
Exemption on LTCG from the sale of any long-term capital asset other than a residential house, provided the net consideration is reinvested into purchasing or constructing a new residential property (subject to conditions and limits).
Section 54EC:
Exemption on LTCG if the gains are invested in long-term bonds as specified (like bonds of NHAI, REC, etc.), subject to a cap and conditions.
Important Points
The rules and rates for capital gains tax can change, so it's important to stay updated with the latest finance acts and budget announcements.
Certain expenses related to the sale and acquisition of the property can be deducted from the capital gains to reduce the tax liability.
For NRIs (Non-Resident Indians), there may be a higher rate of TDS (Tax Deducted at Source) applicable on the sale of property, and they might have to apply for a lower or nil TDS certificate if eligible.
Considering the complexity of tax laws, it's often advisable to consult with a tax professional or chartered accountant to navigate the specifics of your situation, especially for understanding the most current rules, rates, and exemptions