Now, not all of the money you are making from the trade of a property is yours to hold. The period of time you held the asset before dealing it determines how important it is taxed. Long-term capital gain (LTCG) is the advantage that results from long-term period asset proprietorship and is subject to the most effective taxes. Knowing the long-term capital gains tax on actual property is vital for making informed economic conclusions and reducing your tax responsibility. This article will provide an explanation for what LTCG is, how it's reckoned, when it applies, and the tax implications.

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What is Long-Term Capital Gain Tax on Property?

The income made from the sale of a capital asset—actual property—that was held for a distinct minimum amount of time is referred to as long-time period capital gain, or LTCG. The profits are displayed as an extended-time period capital benefit if the asset in issue is immovable property, such as land or a building, and it has been held for more than 24 months. With the benefit of indexation, which modifies the acquisition price in accordance with inflation, this advantage is taxed at a flat price of 20% (with a suitable surcharge and cess).

How to Calculate Long-Term Capital Gain?

The formula to calculate LTCG on the sale of property is:

LTCG = Sale Value – (Indexed Cost of Acquisition + Indexed Cost of Improvement + Transfer Expenses)

To make this clearer, here is a table representation:

Particulars

Amount (₹)

Sale Consideration

80,00,000

Less: Indexed Cost of Acquisition

40,00,000

Less: Indexed Cost of Improvement

5,00,000

Less: Expenses on Transfer (brokerage, legal etc.)

1,00,000

Long-Term Capital Gain

34,00,000

Indexed cost helps reduce tax liability by adjusting the purchase price for inflation using the Cost Inflation Index (CII) notified by the Income Tax Department.

When is a Capital Gain From Property Deemed to be Long-Term?

Relying on how long an asset was held before being sold, capital profits are classified as short-term or long-term. With regards to immovable property, such as real estate, houses, or enterprises, this holding time period has a large impact on the tax price and advantages you would possibly receive. The Profits Tax Act considers the capital gain from an alternative to be long-term if the asset has been held for more than 24 months (years) between the date of acquisition and the sale date. But, the advantage is classified as having a short-term period if the retention duration is 24 months or less.

Here’s a simplified table to illustrate:

Asset Type

Holding Period

Type of Capital Gain

Land or Building

More than 24 months

Long-Term Capital Gain (LTCG)

Land or Building

24 months or less

Short-Term Capital Gain (STCG)

So, if you own a residential or commercial property for over 2 years, any profit from its sale is considered a long-term capital gain.

Tax Implications on LTCG on Property

Here’s a summary of how LTCG on property is taxed in India:

Particulars

Details

Minimum Holding Period

The property must be held for more than 24 months to qualify as a long-term capital asset.

Tax Rate on LTCG

A flat 20% tax rate is applicable on long-term capital gains from property.

Indexation Benefit

Available – The purchase price is adjusted using the Cost Inflation Index (CII) to reduce taxable gains.

Rebate/Deductions under Chapter VI-A

Not available – Deductions like 80C, 80D, etc., cannot be claimed against LTCG.

Exemptions Available

Exemptions can be claimed under:

- Section 54: Reinvest in another residential property within specified timelines.

- Section 54EC: Invest in NHAI/REC bonds within 6 months of sale (limit ₹50 lakh).

- Section 54F: Applies if the entire sale proceeds (not just gains) are reinvested in one residential house.

Surcharge & Cess

LTCG is subject to:

- Surcharge (based on income level)

- Health and Education Cess of 4% on total tax

Set Off and Carry Forward

LTCG can be set off against long-term capital losses only, and unadjusted losses can be carried forward for 8 assessment years.

TDS for NRI Sellers

If the seller is an NRI, TDS at 20% (plus surcharge and cess) is applicable under Section 195.

Tax Filing Requirement

LTCG must be disclosed in your Income Tax Return (ITR) under the capital gains section (Schedule CG).

Advance Tax Liability

If LTCG exceeds ₹10,000 in a financial year, advance tax must be paid as per prescribed deadlines to avoid interest penalties.

Long-Term Capital Gains (LTCG) Exemptions on Sale of Property

Section

Eligible Asset Sold

Conditions for Exemption

Eligible Reinvestment/Use

Time Limit for Investment

Exemption Limit

Section 54

Residential House Property

- Asset must be a long-term capital asset (held for >24 months)

- Seller must be an individual or HUF

Purchase or construct another residential house property in India

- Purchase: Within 1 year before or 2 years after sale

- Construction: Within 3 years

Full LTCG or amount invested, whichever is lower

Section 54D

Land or building used for industrial purposes

- Compulsory acquisition by the government

- Used for industrial purposes for at least 2 years before transfer

Acquisition of other land/building for industrial use

Within 3 years from date of compulsory acquisition

LTCG arising from the compulsory acquisition

Section 54EC

Land or Building (residential or commercial)

- Must be a long-term capital asset

- Seller can be any person

Investment in specified bonds (NHAI or REC)

Within 6 months from the date of transfer

Up to ₹50 lakh per financial year

Section 54F

Any Long-Term Capital Asset (except residential house)

- Seller must be an individual or HUF

- Must not own more than one residential house on the date of sale

Purchase or construct one residential house property in India

- Purchase: Within 1 year before or 2 years after sale

- Construction: Within 3 years

Exemption = LTCG × (Cost of new house ÷ Net sale consideration)

Frequently Asked Questions (FAQs)

What's the long-term capital gains tax rate on real estate?

With the benefit of indexation, the tax rate is 20%. There can be extra cess and surcharges.

Am I able to argue that the sale of my property exempts me from LTCG?

Sure, in case you reinvest the advantage according to positive guidelines, you could receive exemptions under Sections 54, 54F, and 54EC.

How does the LTCG computation use indexation?

Indexation lowers your taxable benefit by applying the Cost Inflation Index (CII) to alter the assets' acquisition price for inflation.

Is there a ceiling on how much capital advantage is eligible for section 54 exemptions?

Even though the exemption has no upper limit, the amount spent on a new residential property should be equal to or exceed the LTCG.

Can I get advantages under section 54 and section 54EC at the same time?

No, you could only claim section 54EC (making an investment in certain bonds) or section 54 (purchasing every other home) for the same capital advantage.

How long does it take to invest in any other home and be eligible for the section 54 exemption?

A new residential home must be constructed within 3 years or purchased within 12 months before or two years after the sale.

What's the top limit, and how can I invest in 54EC bonds?

Within six months following the sale, you can purchase NHAI or REC bonds, with a maximum funding of ₹50 lakh permitted.

Does my income tax return have to include LTCG?

Yes, even supposing the total quantity is exempt through reinvestment, any LTCG gained needs to be reported in your ITR.

Are LTCG exemptions on property also available to Non-Resident Indians (NRI)?

Yes, subject to the same regulations as resident Indians, NRIsare eligible to seek exemptions under Sections 54 and 54EC.

What happens if I sell the new property bought under Section 54 within 3 years?

The exemption will be revoked, and the previously exempted capital gain will become taxable in the year of sale.

What occurs if I sell the newly purchased property under Section 54 before the three-year mark?

The previously excluded capital gain will become taxable in the year of sale once the exemption is withdrawn.

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