A plot of land, building, or both is categorised as Capital Assets in the Income Tax Act. Profit on the sale of such immovable assets is classified as capital gain and taxable under the head of "Capital Gain" of the Income Tax Act. The amount of tax payable depends on factors such as the asset's holding period, which determines whether the gain is short-term or long-term, and the applicable tax rates. However, taxpayers can reduce this tax liability by claiming an exemption under sections 54F and 54EC of the Income Tax Act.
This article helps readers understand the capital gain calculator, the difference between short-term and long-term gains, and the various exemption options available to taxpayers.
The tax implications will vary depending on whether the gains are categorised as short-term or long-term, and such categorisation shall be based on the holding period of assets.
Capital gains from the sale of a plot of land, building, or both will be considered short-term if the land was owned for up to 24 months (or 2 years) before selling, and if it were held for more than 24 months, it would be considered long-term capital gains.
Short-term capital gains will be taxed at the applicable slab rate of taxpayers. Long-term capital gains will be taxed at 12.5% without indexation. The taxpayer can also compute long-term capital gain tax at 20% with an indexation benefit. However, this option is available for resident individuals and HUFs if land, buildings, or both are sold before 23 July 2024. Between these two rates for long-term capital gains, the taxpayer can choose whichever is beneficial.
To arrive at the Short Term Capital Gains (STCG) can use the following formula -
Particulars | Amount |
Total Selling Price | xx |
Less: | |
Cost of Acquisition | (xx) |
Expenses directly related to the sale | (xx) |
Exemption: Section 54B, 54D, 54G, 54GA | (xx) |
Short-term Capital Gains | xxx |
For Long Term Capital Assets, the only distinction is that resident individuals and HUFs are permitted to deduct the Indexed Cost of Acquisition/Indexed Cost of Improvements from the sale price for sale made on or before 22nd July, 2024. Indexation involves adjusting the purchase price for the impact of inflation by applying the Cost Inflation Index (CII). This adjustment increases your cost base (and reduces your gains).
Particulars (For sale made till 22nd July, 2024) | Amount |
Total Selling Price | xx |
Less: | |
Indexed Cost of Acquisition | (xx) |
Expenses directly related to the sale | (xx) |
Exemption: Section 54B, 54D, 54EC, 54F, 54G, 54GA | (xx) |
Long-term Capital Gains (Taxable @ 20%) | xxx |
For the sale of land made on or after 23rd July 2024, the indexation benefit has been removed and the calculation is to be done similar to STCG. The tax rate has also been reduced to 12.5% on such long-term capital gains. However, the taxpayer can still choose to compute tax by availing indexation but with a higher tax rate of 20%.
Profits arising from the sale of immovable property, such as a plot of land, building, or both, are taxable in the hands of taxpayers under the head "Capital Gain" of the Income Tax Act. Taxpayers have to pay tax for such capital gain. However, taxpayers can save from capital gain tax liability by claiming exemption under sections 54F and 54EC of the Income Tax Act. These sections provide capital gain exemption schemes that help taxpayers legally save on tax arising from such transactions.
Under Section 54F, the taxpayer can save tax liability on capital gain if the sale proceeds are invested to purchase or construct a residential house property. The following conditions have to be fulfilled:
The quantum of exemption under Section 54F can be determined on the following basis:
Alternatively, if you have not been able to invest your capital gains until the date of filing of income tax return (usually 31st July), you are allowed to deposit your gains in the Capital Gains Account Scheme(CGAS) and claim this as an exemption from your capital gains in your taxreturn .
However, if the amount deposited is not utilized for the specified purpose within the stipulated period, then the unutilized amount shall be charged as capital gains in the year in which the specified period expires.
What if you do not intend to purchase another property? In such a case, you can still save the tax on your capital gains, by investing them in certain bonds like:
These bonds are redeemable after 5 years. If such bonds are transferred to another person or converted back to money, then exempted capital gain shall become taxable in the year of such event.
You are allowed a period of 6 months to invest in these bonds – though to be able to claim this exemption, you will have to invest before the return filing date. The maximum exemption that can be claimed by investing in these bonds in a financial year is Rs. 50 Lakhs.
Section | Exemption |
Section 54B | This is claimed when the proceeds from the sale of urban agricultural land are invested towards the purchase of another agricultural land. |
Section 54D | Capital gains which arise from the compulsory acquisition of land or building forming part of an industrial undertaking and the proceeds are invested in the acquisition of a property for setting up another industrial undertaking. |
Section 54G | Exemption in respect of capital gains from transfer of assets in cases of shifting of industrial undertaking from urban areas to rural areas |
Section 54GA | Exemption with respect to capital gains from transfer of assets in cases of shifting industrial undertaking from urban areas to special economic zones. |
The following table explains the tax rate and applicability of indexation in various cases for sale of land:
Type | Acquisition Date | Sale Date | Tax Rate | Indexation |
STCG | Any | Any | As per slab | No |
LTCG | On/after 23rd July 2024 | After 23rd July 2024 | 12.50% | No |
LTCG | Before 23rd July 2024 | Before 23rd July 2024 | 12.5% (without indexation) or 20% (with indexation) | Optional |
Tax on Long-term Capital Gains on Equity Funds
Short Term Capital Gain on Shares