Capital Gains Tax When You Sell Property in India

Short answer: Profit from selling property is taxed as capital gains — short-term if held briefly and taxed at your slab, long-term if held longer with its own rate, and there are exemptions if you reinvest in another house or specified bonds.

Short-Term vs Long-Term

How long you held the property decides the category. Sell within the short holding window and the gain is short-term, added to your income and taxed at your slab rate. Hold beyond it and the gain is long-term, taxed at a separate long-term rate with its own rules.

How the Gain Is Computed

The gain is broadly the sale price minus your cost of acquisition and improvement and related expenses. The exact method, including whether and how inflation indexation applies, has specific rules, so use the prescribed approach rather than a rough subtraction, especially for older properties.

Exemptions for Reinvestment

Long-term gains from a residential property can be exempt if you reinvest the gain in buying or constructing another residential house within prescribed time limits. There is also an option to invest the gain in specified capital-gains bonds within a set period for an exemption, subject to a cap.

The Capital Gains Account Scheme

If you have not reinvested by the time you file your return, you can park the amount in a Capital Gains Account Scheme with a bank to preserve the exemption while you find the new property within the deadline. Failing to reinvest in time makes the gain taxable.

TDS and Documentation

Property sales can attract TDS by the buyer, and high-value transactions are reported to the tax department. Keep purchase deeds, improvement bills and sale documents carefully, because you will need them to compute the gain and claim exemptions correctly.

Sources: Income Tax Department of India

This explainer was written by The Dispatch desk to answer a question readers commonly ask. It is general information, not personalised financial advice.