Capital Gains Tax on Property Sale – How to Save LTCG Tax in FY 2025-26 ?

Did you earn capital gains recently by selling a property and now find yourself confused about how capital gains tax works on such transactions? You’re not alone.

While earning a handsome profit from selling real estate can be exciting, it also brings along tax implications that many overlook. In India, any profit made from the sale of a property is subject to capital gains tax and understanding how it works is crucial to avoid unnecessary tax burdens.

But don’t worry ,we’ve got you covered. In this article, we’ll break down everything you need to know about capital gains tax on property sales in India and guide you through smart ways to legally save on LTCG tax. Let’s dive in and explore how to keep more of your hard-earned profit in your pocket.

What is Capital Gains Tax in India?

When you sell a capital asset like land, buildings, machinery, jewellery, or even intangible assets like trademarks, and make a profit, this profit is referred to as capital gains — and it’s subject to capital gains tax under Indian tax laws.

The tax is levied in the year the asset is transferred, and the rate of tax depends on how long you’ve held the asset. Based on the holding period, capital gains are categorized into two types:

• Short-Term Capital Gains (STCG)
• Long-Term Capital Gains (LTCG)

What Qualifies as a Capital Asset – And What Doesn’t?

Under the Income Tax Act, a capital asset refers to any kind of property that a person owns whether connected to their business or not which is capable of being held or transferred for consideration. These assets form the basis for calculating capital gains tax when sold or transferred.

Examples of Capital Assets:

Capital assets include both tangible and intangible properties, such as:

• Immovable Property: Land, buildings, leasehold rights
• Financial Assets: Shares, mutual funds, debentures, bonds
• Movable Property: Jewelry, vehicles, machinery
• Intellectual Property: Patents, trademarks, copyrights

These assets, when sold at a profit, attract capital gains tax, provided they meet the necessary holding period criteria for short-term or long-term classification.

Assets That Are Not Considered Capital Assets

Not every property or item you own is treated as a capital asset under the Income Tax Act. The law clearly defines a list of exceptions, which are not taxable under capital gains provisions, even when sold or transferred.

Here’s a list of such excluded items:

1. Stock-in-trade or Raw Material

• Items held for business or professional use, such as consumables, stock-in-trade, or raw materials, are excluded.
• Profits from these are taxed under business income, not capital gains.

2. Personal Effects and Household Items

• Moveable items for personal use like clothing, personal furniture, and appliances.
• Exceptions: Jewelry, paintings, archaeological collections, and other artistic work are not exempt- they are still considered capital assets.

3. Rural Agricultural Land in India

• Agricultural land situated in a rural area, as per defined distance limits from urban centers, is not treated as a capital asset.
• Sale of such land does not attract capital gains tax.

4. Government-Issued Bonds and Gold Instruments

• Certain bonds issued by the Central Government are exempt from the definition of capital assets. These include:

• Special Bearer Bonds, 1991
• 6.5% Gold Bonds, 1977
• 7% Gold Bonds, 1980
• National Defence Gold Bonds, 1980

5. Gold Deposit Bonds and Certificates

• Investments under the Gold Deposit Scheme, 1999 or Gold Monetisation Scheme, 2015, including deposit certificates issued by banks, are not capital assets.
• Hence, their redemption or maturity does not result in capital gains taxation.

Classification of Capital Assets Based on Holding Period

Capital assets are categorized into two main types, depending on how long you hold the asset before selling it. This classification is important because it determines the tax rate and applicable exemptions under the Income Tax Act.

1. Short-Term Capital Assets (STCA)

A capital asset is considered short-term if it is sold within 24 months (2 years) from the date of acquisition.

So, if you sell the property, land, or other specified assets within two years of purchase, the profit will be classified as short-term capital gains and taxed accordingly.

Exceptions – 12-Month Holding Period:

In certain cases, the short-term threshold is reduced to 12 months. This applies to specific financial assets like:

• Listed equity shares on a recognized stock exchange
• Units of equity-oriented mutual funds
• Units of business trusts
• Zero-coupon bonds

If any of the above assets are sold within 12 months of acquisition, they are treated as short-term capital assets.

1. Long-Term Capital Assets (LTCA)

A long-term capital asset is held for a specific minimum period before being sold or transferred. This classification affects how your capital gains are taxed and typically results in a lower tax rate compared to short-term profits.

General Rule:

• For immovable properties such as land or buildings, the asset is considered long-term if held for more than 24 months before sale.
• For financial assets like shares and mutual funds, the holding period required is often only 12 months.

However, the required holding period varies depending on the type of capital asset. Here’s a comprehensive breakdown:

Holding Period Criteria for Long-Term Capital Assets

Type of Capital Asset	Holding Period to Qualify as Long-Term
Listed Equity or Preference Shares	More than 12 months
Unlisted Equity or Preference Shares	More than 24 months
Immovable Property (Land, Building, or Both)	More than 24 months
Listed Securities (Bonds, Debentures, Government Securities)	More than 12 months
Units of UTI (Listed or Unlisted)	More than 12 months
Equity-Oriented Mutual Fund Units (Listed or Unlisted)	More than 12 months
Debt-Oriented Mutual Fund Units (Listed or Unlisted)	More than 24 months
Zero Coupon Bonds (Listed or Unlisted)	More than 12 months

 

Why This Classification Matters

Identifying whether your asset is short-term or long-term helps determine:

• Which tax rate applies
• Whether you’re eligible for indexation benefits
• Which exemptions (like Sections 54, 54EC, 54F) you can claim

Long-term classification is generally more tax-efficient, especially for property and financial asset holders.

Important Updates in ITR Forms for AY 2025–26: What Taxpayers Must Know

The Income Tax Department has introduced several key changes in the Income Tax Return (ITR) forms for Assessment Year 2025–26, aiming to simplify compliance and align with new tax rules announced in the Union Budget 2024. Here’s a breakdown of the major updates every taxpayer should be aware of:

1. LTCG Now Allowed in ITR-1 and ITR-4 (Up to ₹1.25 Lakh)

Earlier, individuals earning any amount of long-term capital gains (LTCG) were required to file more detailed forms like ITR-2 or ITR-3, even for small gains. However, starting AY 2025–26:

• Taxpayers with LTCG up to ₹1.25 lakh from listed equity shares or equity mutual funds (taxable under Section 112A)
• Can now use ITR-1 (Sahaj) or ITR-4 (Sugam)
• Condition: No capital loss carried forward is allowed in these simpler forms.

This change is a big relief for small investors, especially salaried individuals, as it reduces the compliance burden.

2. Capital Gains Segregation Based on Transaction Date (Pre/Post July 23, 2024)

The ITR forms have introduced a new requirement to separately report capital gains for transactions that occurred:

• Before July 23, 2024
• On or after July 23, 2024

This change is aligned with the Union Budget 2024 amendment, which:

• Reduced LTCG tax on real estate from 20% (with indexation) to 12.5% (without indexation).
• Hence, proper segregation ensures correct tax computation under the respective tax regime.

3. Buyback Proceeds to Be Reported as Deemed Dividends

Effective October 1, 2024, the proceeds from the buyback of shares by domestic listed companies will now be treated as ‘deemed dividends’ and not capital gains.

As per the new ITR requirements:

• Such proceeds must be shown under ‘Income from Other Sources’.
• In the Capital Gains Schedule, the sale proceeds will be shown as zero, allowing the cost of acquisition to be reported as a capital loss.
• This loss is eligible for carry forward up to 8 assessment years.

This ensures that the same income isn’t taxed under two heads and preserves loss benefits.

4. Enhanced Capital Gains Disclosure for ITR-7 (Applicable to NGOs & Trusts)

For institutions, NGOs, and trusts filing ITR-7, there’s now a mandatory disclosure to separately report capital gains based on whether the transaction occurred:

• Before July 23, 2024, or
• On or after July 23, 2024

This requirement ensures accurate taxation, especially where revised LTCG rules apply.

5. Increased Threshold for Reporting Assets and Liabilities in ITR-2

Previously, individuals with assets or liabilities exceeding a specific value were required to disclose them mandatorily in ITR-2. Now, the threshold has been increased to ₹1 crore.This means:

• If your total assets (movable or immovable) do not exceed ₹1 crore, you are not required to provide a detailed disclosure in ITR-2.
• This change aims to reduce compliance requirements for mid-level taxpayers.

Summary of Key ITR Changes for AY 2025–26

Change	Applicable To	Impact
LTCG up to ₹1.25 lakh allowed in ITR-1/ITR-4	Salaried individuals, small investors	Simplifies filing for small capital gains
LTCG segregation (before/after July 23, 2024)	All taxpayers	Ensures correct tax rate application (12.5% or 20%)
Buyback treated as deemed dividend	Equity shareholders	Allows capital loss claim + reduces double taxation
Detailed LTCG disclosure in ITR-7	Trusts, NGOs	Enhances transparency for institutional returns
Asset disclosure threshold raised to ₹1 crore	Individuals filing ITR-2	Reduces compliance for moderate-asset holders

 

Short-Term vs. Long-Term Capital Gains on Property in India (2025)

When you sell a property in India, the profit you earn is classified as capital gains and is subject to taxation under the Income Tax Act. The nature and rate of taxation depend primarily on how long you held the asset before selling it. Let’s break it down.

What Qualifies as Property for Capital Gains Tax?

For capital gains purposes, the term “property” includes a wide range of capital assets such as:

• Residential houses or flats
• Commercial buildings
• Land or plots
• Automobiles (if used for business/profession)
• Gold, jewelry
• Equity shares and mutual funds

Short-Term vs. Long-Term Capital Gains on Property

Capital gains are categorized into Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) depending on the holding period of the asset.

Short-Term Capital Gains (STCG)

• If a property is sold within 24 months from the date of purchase, any profit made is treated as short-term capital gain.
• STCG is added to your total income and taxed as per your income tax slab rates.

Long-Term Capital Gains (LTCG)

• If the property is sold after 24 months, the gains are treated as long-term capital gains.
• LTCG enjoys preferential tax rates and may be eligible for indexation benefits or new concessional tax rates as per changes introduced in Budget 2024.

STCG vs. LTCG on Property – Detailed Comparison

Particulars	STCG	Long-Term Capital Gains (LTCG)
Holding Period	Less than or equal to 24 months	More than 24 months
Applicable Tax Rate	As per individual’s income tax slab	(i) 20% with indexation (if sold before July 23, 2024) (ii) 12.5% without indexation (if sold on or after July 23, 2024)
Tax Computation Method	Added to gross income and taxed normally	Separate computation; taxpayer can choose between indexation and non-indexation option for sales post July 23, 2024 (if property was acquired before that date)
Indexation Benefit	Not allowed	Allowed for sales before 23rd July 2024. Optional for sales after 23rd July 2024, but only for properties purchased on or before 22nd July 2024
ITR Filing Impact	Income shown under ‘STCG’	Income shown under ‘LTCG’ with relevant details including cost, sale consideration, and exemptions claimed (if any)

 

Illustrative Example:

Let’s say you purchased a flat in August 2022 and sold it in May 2024:

• Holding period = Less than 24 months
• Profit earned = Considered short-term capital gain
• Tax = Added to your income and taxed as per your income tax slab

Now suppose you purchased the same flat in June 2021 and sold it in September 2024:

• Holding period = More than 24 months
• Profit = Treated as long-term capital gain
• Tax = You can choose:
  • 20% with indexation, or
  • 12.5% without indexation (available for sale on or after 23rd July 2024)

Important Note for Taxpayers:

For property sales after July 23, 2024, you have the option to pay 12.5% tax without indexation instead of 20% with indexation, but only if the property was purchased on or before July 22, 2024.

This flexibility allows taxpayers to select the method that results in lower tax liability.

How to Claim Tax Exemptions on Capital Gains from Property Sales in India (FY 2025–26)

Selling property in India can result in a significant tax burden, especially when the profits known as capital gains are substantial. Fortunately, the Income Tax Act offers various exemptions to help reduce or even eliminate your tax liability. However, it’s important to understand that most tax exemptions apply only to long-term capital gains (LTCG), not short-term ones.

Let’s break down the tax-saving opportunities available under both short-term and long-term capital gains.

Exemptions for Short-Term Capital Gains (STCG) on Property

If you sell a property within 24 months of its purchase, the profit is treated as short-term capital gain and taxed at your applicable income tax slab rate. However, a basic exemption is available depending on your age and the tax regime you choose.

Under the Old Tax Regime:

• Residents or NRIs below 60 years: Exempt from tax if total income (including STCG) is less than ₹2.5 lakh.
• Senior citizens (60 to 80 years): Exempt up to ₹3 lakh.
• Super senior citizens (80+ years): Exempt up to ₹5 lakh.

Under the New Tax Regime (from FY 2023–24 onwards):

• All individuals (regardless of age): Income is tax-free if the total income, including short-term gains, is up to ₹4 lakh (after accounting for standard deduction and rebate under Section 87A).

Exemptions for Long-Term Capital Gains (LTCG) on Property

When you sell a property held for more than 24 months, the resulting profit is treated as long-term capital gain. The good news is: You can claim exemptions on LTCG by reinvesting the capital gains or net sale proceeds into specific assets.

Let’s explore the key exemption sections under the Income Tax Act.

1. Section 54 – Exemption on Sale of a Residential Property

Applicable when you sell a residential property and reinvest the capital gain into another residential property.

Eligibility Conditions:

• The asset sold must be a long-term residential house.
• You must purchase a new residential property:
  • Within 1 year before the sale, or
  • Within 2 years after the sale.
• Or you must construct a house within 3 years from the date of sale.
• The new house must be located in India.
• You can claim exemption for up to two houses, but only once in your lifetime and only if your capital gains are ₹2 crore or less.

New Rule (Effective April 1, 2023):

A maximum cap of ₹10 crore has been introduced for exemption under Section 54. Even if your capital gain exceeds this amount, the exemption will be limited to ₹10 crore

2. Section 54F – Exemption When Asset Sold is Not a Residential Property

Applicable When: You sell any long-term capital asset other than a residential house (e.g., land, commercial property) and use the entire sale proceeds to buy a residential house.

Conditions to Fulfill:

• Use the full net sale proceeds (not just capital gains) to buy or construct one residential house in India.
• Purchase must be made:
  • Within 1 year before, or
  • Within 2 years after the date of transfer.
• Construction must be completed within 3 years of sale.
• On the date of transfer:
  • You should not own more than one house, excluding the new one being purchased.
  • You must not purchase or construct another house within 2/3 years of the transfer.

New Rule (Effective April 1, 2024):

Exemption under Section 54F is also capped at ₹10 crore.

Important:

If you violate the holding period or invest in another house, the exempted LTCG becomes taxable in the year of violation.

3. Section 54EC – Reinvesting in Specified Bonds

Applicable When: You invest long-term capital gains from the sale of land or building in specified government bonds.

Conditions:

• Investment must be made within 6 months from the date of transfer.
• Eligible bonds include:
  • National Highways Authority of India (NHAI)
  • Rural Electrification Corporation (REC)
• Lock-in period: 5 years
• Maximum investment allowed: ₹50 lakh in a financial year
• If bonds are transferred or pledged before maturity, the exemption is revoked and taxed in that year.

4. Section 54GB – Exemption by Investing in Startups

Applicable When: You sell a residential property and invest the capital gains in equity shares of an eligible startup.

Key Requirements:

• The startup must be eligible as per government guidelines.
• You must hold shares for at least 5 years.
• The company must use the investment to purchase new assets (plant, machinery, etc.).

Summary Table – Capital Gains Exemption Sections

Section	Applicable On	Reinvestment Option	Max Limit	Timeframe
54	Sale of a residential house	Purchase/Construction of a house	₹10 crore	Purchase: 1 year before / 2 after Construction: within 3 years
54F	Sale of non-residential long-term assets	Purchase/Construction of a house	₹10 crore	Same as above
54EC	Sale of land/building	Specified bonds (NHAI/REC)	₹50 lakh	Within 6 months
54GB	Sale of a residential house	Shares in eligible startups	No specific cap	Within the prescribed period

 

Pro Tip:

If you’re not immediately reinvesting, you can deposit your capital gains in a Capital Gains Account Scheme (CGAS) at an authorised bank before the ITR due date. This allows you to claim exemption now and use the funds later within the stipulated time.

Tax Exemption under Section 54EC

For an exemption under Section 54EC, an individual must meet the following conditions:

If unable to invest before filing taxes for that year, deposit the amount in a PSU bank or any bank listed under the Capital Gains Account Scheme (1988).

Convert this deposit into an investment within 2 years from the date of sale. Otherwise, it will be considered a short-term capital gain in the year the period lapses.

Tax Exemption under Section 54B

This exemption applies only to capital gains from the sale of agricultural land outside of a rural area. A rural area is described as follows:

To qualify for this exemption, the following conditions must be met:

If there is a delay in investment, deposit the amount in a bank under the long-term capital gains scheme.

Complete the investment within 2 years, or it will be treated as a short-term capital gain in the year of expiry.

Quick Comparison: Capital Gains Tax Exemptions under Sections 54, 54EC, 54F, and 54GB

The Income Tax Act offers several exemptions from long-term capital gains (LTCG) if the sale proceeds are reinvested in specified ways. Below is a simplified comparison of four popular exemption sections:

Particulars	Section 54	Section 54EC	Section 54F	Section 54GB
Who can claim?	Individuals / HUF	Any taxpayer (including companies)	Individuals / HUF	Individuals / HUF
Type of asset sold	Residential house property or land appurtenant to it	Long-term capital asset (Land or Building or Both)	Any long-term capital asset except a residential house	Residential house property
Where to invest?	Purchase or construct one new residential house in India	Capital gain bonds issued by NHAI, REC, PFC, IRFC	Purchase or construct one new residential house in India	Equity shares of a new eligible company (assessee must hold 50% or more shares)
Time limit for reinvestment	– Purchase: Within 1 year before or 2 years after the sale- Construction: Within 3 years	Within 6 months from the date of sale	– Purchase: Within 1 year before or 2 years after- Construction: Within 3 years	Investment in the company before the due date of filing ITR
Lock-in/holding condition	Must not sell the new house within 3 years	Must hold bonds for at least 5 years	Must not sell the new house within 3 years	Must not sell shares within 5 years
What happens on premature sale?	Exempted capital gain is reduced from cost of acquisition of new asset	Exempted gain becomes taxable in the year of sale	Exempted gain becomes taxable in the year of sale	Exempted gain becomes taxable in the year of sale
Exemption Limit	Up to ₹10 crore (as per Budget 2023)	Max investment allowed: ₹50 lakh	Up to ₹10 crore (as per Budget 2023)	No specific monetary cap mentioned