Capital Gains and Sale of Residential Property

Capital Gains
Capital Gains

In terms of investment, the gain does not accrue until the asset is actually sold/ transferred. Increases in value without transfer do not trigger a tax event.Consider a mutual fund, which is a cheap vehicle for a large pool of investors to put their collected money into various securities such as stocks, bonds or money market components. A tax savvy investor will first determine the fund’s unrealized capital gains over the years, usually given as a percentage of the net value of underlying assets, before investing in it. This is also called the mutual fund’s capital gains exposure. When the fund’s management decides to distribute these capital gains, they also become a tax liability for the investors.

Short Term and Long Term Capital Gains

A capital gain may be short term or long term. In India, for the fiscal year 2017-18, the short term is anything equal to or less than 24 months. Any period of holding of the asset for longer than this makes the gains received on it a long term capital gain. To be taxed in the current financial year, the transfer of capital assets should have been made in the previous financial year.

For individuals or Hindu undivided families, the reduction of time period for a capital gain arising from an estate sale from 36 months to 24 months (2 years) for the ongoing financial year is good news. This is because short term capital gains are taxed at marginal tax rates and usually amount to a small sum but long term capital gains taxes at the rate of 20% of the profit can burn a deep hole in your pocket.

Tax ClassificationPeriod of holding for FY 2017-18Rate of Tax
Short terms capital gainsLess than 2 years after registry or issue of OC, whichever is laterMarginal tax rate – (variable up to 30%) + 3% cess + up to 15% surcharge
Long Term Capital Gains2 years or more20% with indexation benefit and 10% without indexation benefit. Exemptions available if proceeds invested in residential house or Section 54EC bonds

Calculation of Capital Gains Tax on Sale of Property:

  • Note the value of the received amount after sale of the property. In this case, the cost of acquisition would be the original purchase price paid at the time of acquisition.
  • Subtract all expenses incurred in the process of sale or transfer such as stamp duty, commissions paid to realtor, documentation etc from the value of sale or transfer.
  • You may multiply the acquisition cost by a Cost Inflation Index ratio to “inflate” the property value in line with general inflation. The CII is published by the CBDT for every year. As a point of interest, the CII for the assessment year 2017-2018 is 272. The formula is :
    Indexed acquisition cost = CII of Year of Sale/ CII of Year of acquisition
  • Subtract the Acquisition Cost after Indexing from the Value of Sale.
  • Subtract Indexed value of repairs and renovations from the value in the previous Step.

Section 54 allows you to claim exemption from paying income tax on capital gains if the money received is re invested in another residential property within India either 1 year before or 2 years after the date of sale.
You can also claim this exemption if you spend in constructing another residential building within 3 years from the date of sale.

If You don’t have to be a math genius to do your taxes! You can easily hire a tax expert. We, at AllindiaITR guarantee you the best rates in the market for highly professional financial services. Our online platform is owned and operated by Corwhite Solutions Private Limited.


  1. thanks for this valuable info.this blog describes in detail the types of capital tax .and it give me a lot of information within minutes when i am quickly in search for clearing my doubts regarding selling a plot which i had.thanks a lot for this valuable words

  2. this this really help me alot.This blog is really helpfull for us to know more about ITR. This tell us everything that we should know about ITR. This is like a algorithm to fill taxes becaute it tell us step by step how we should fill taxes and yes it is also easy to understand. It tell breifly and accurately about taxes. The best thing about this blog is that we can get every information hear only. we shoud not go on different side to search about itr. Great work keep it up.
    Can you tell me more about Long Term Capital Gains?

  3. I am really happy to say it’s an interesting post to read . I have gathered new and important information from your article , you are doing a great job . Keep it up.

  4. Your way explaining is very good.Can I buy multiple properties with the money acquired through long term capital gains by way of selling a high value residential property?

  5. thank you for an amazing article regarding capital gains, After reading this article I came to know all about capital gains for sale of residential property, Nw I well know that at what rate of tax made if someone sell their residential property. Thakyou for providing such an useful article in such an easy way.

  6. Amazing article and very easy to understand the language of the blog is very simple. This blog help us to know more about different types of gains and how they are useful us. This blog is very interactive with the reader. This blog enhances our knowledge regarding ITR and many useful information can be taken from these blogs. The difference that is shown in the between the short term gain and long term gains makes it really interesting for better learning and understanding. The points under capital gains tax are really useful once we start to fill the ITR. All in all a very good blog and it helped me alot through out. One question though which exemptions are given in section 52??

  7. Thanks for your feedback.

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    Please go to this page for detailed information on Long Term Capital Gains.


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