Saving Capital Gains from Property – An Insight, The real estate market is booming like anything. There are lots of transactions on daily basis which includes the selling and purchasing of the property. These type of transactions came into the notice of the income tax department, where many of the individuals were making super profits and so they introduced a tax called capital gain tax.

So if you sell a property then this tax would be coming in the picture and you would be liable for paying the same at an appropriate rate. The detailed discussion is mentioned below. Now check more details regarding “Saving Capital Gains from Property” from below….

Saving Capital Gains from Property – An Insight

Basics of Capital Gains

There are basically two types of capital gains. They are:

  1. Short term capital gains
  2. Long term capital gains

Short term capital gains are the ones which are occurred when the property is sold within 3 years from the date of purchase of the same property. In the other case, Long term capital gains occur when the property is held for more than 3 years and same is transferred afterwards.


Short term capital gains is levied at the prevailing slab rates pertaining to that assessee and the Long term capital gains is levied at 20%. Due to these, the assessee was required to may great taxes. So the income tax department has given some benefits to the assessee to lower the tax.

Benefits Available to the Assessee:

1. The first benefit which is available is the benefit of indexation. Indexation is that increase in cost which can be availed if the property sold is a long term asset, i.e. it was held for more than 3 years and then it was sold.

The indices of the cost increment is available for each year from the income tax department. If the property was purchased before 1980, then the indexation of 1981-82 should be taken.

2. The second advantage available to the assessee is that of set off of capital losses. The capital losses can be set off from 8 subsequent years. Capital loss arises when the property is sold for a price less than its current indexed cost or the cost of acquisition whichever the case may be.

Now the question arises why any body would sell their property for a price lower than its cost. The simple answer to that can be the property is actually given to the bank for mortgage against any loan. If the person fails to make the payment of the loan than the bank would recover such amount from the property which might be sold to any person for lesser amount to just recover the loan amount. There can be many more reasons to it.

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3. There are various exemptions made available to the assessee to make sure that the real estate development is not stopped. These exemptions are not real cash exemptions but some what kind exemptions.

There is a section called Section 54 which gives exemption when you sell one residential house and buy a new residential house subject to the conditions:

  1. Should be purchased 1 year before or 2 years after the sale transaction.
  2. If the house is in construction, then the construction should be completed within 3 years from the sale of the property.
  3. Lock in period of 3 years.
  4. If the due date comes in between the said period than the same needs to be deposited to a separate account called – “Capital Gains Deposits Scheme”.

There is another exemption called Section 54EC exemption which is available if the assessee has sold the property and from the proceeds of such property buys the bonds of the either National Highway Authority of India (NHAI) or Rural Electrification Bonds (REC), subject to the conditions:

  • Should be invested within 6 months of the date of transfer.
  • Minimum investment of Rs. 20,000.
  • Maximum exemption of Rs. 50 Lakhs.
  • If the due date comes in between the said period than the same needs to be deposited to a separate account called – “Capital Gains Deposits Scheme”.
  • Interest rate offered is around 6%, make sure that the interest received from such bonds is taxable.


So make your planning that way, such that the tax liability comes to the lowest. If you are not able to understand the provisions than please appoint an expert which would help you getting maximum tax benefits and lowest tax payable. If further queries you may contact me at

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