How to calculate Capital Gains Tax on House Sale?

Rural areas in India do not consider Agricultural land as capital assets therefore no capital gains are applicable on its sale. No one can be taxed even if he/she uses the entire amount he gets by selling this property to buy a house property.

Tax Treatment In India Holding period as for FY2016-17 Holding period updated in FY2017-18 onwards Rate of Tax
Short terms capital gains Less than 3 years after issue or registry of OC, whichever happens later Less than 2 years after issue or registry of OC, whichever happens later Marginal tax rate – (till 30%), also 3% cess and till 15% surcharge
Long Term Capital Gains 3 years or more 2 years or more 20% with indexation benefit but 10% without indexation benefit.
Exemptions given if proceeds are invested in Section 54EC bonds or residential house.
Indexation benchmark changed to 2001 from the earlier 1981-82 in budget 2017-18.

One must satisfy the following conditions in order to avail concessions under section 54F

  • One must purchase a house either 1 year before or 2 years after the sale.
  • Must complete under construction properties within 3 years from the date of transfer of the original house.
  • One cannot sell the house within 3 years of buying or completing construction.
  • The new house must be situated in India.
  • On the date of transfer a person cannot own more than one residential quarter other than the new one bought.
  • One cannot purchase a house within 2 years or construct a residential house within a period of 2 years apart from the new one.

One will not be required to pay any tax if he/she satisfies the above mentioned conditions and invests the entire sale proceeds towards the purchase of the new house. No tax will be levied on the capital gain if one invests in the Capital Gains Account Scheme in India for the specified period suggested by the bank then he is exempted from paying tax on Capital Gains. If he/she fails to keep the money in the scheme for the completely specified period then the money will be treated as capital gain.

In case of a long-term Capital asset the tax in India will be exempted under Section 54EC. If one does not intend to invest in another property then he/she may invest in certain bonds for a specified reason as such can be redeemed in 2 years. The government gives 6 months to invest in these bonds.