Selling your property?
Great! But once the deal is done, there’s one more thing you can’t ignore:
💸 Capital Gains Tax — the tax you pay on the profit from your sale.
Now here’s the good news:
👉 There are legal ways to reduce or completely avoid paying capital gains tax — if you plan smartly and take timely action.
In this guide, we will walk you through proven legal methods, backed by the Income Tax Act, that can help you save significantly when selling property in India.
Let’s begin!
📌 What Is Capital Gains Tax on Property?
When you sell a property at a price higher than its purchase value, the profit is taxed.
That profit is called capital gain.
Depending on how long you’ve held the property, it’s taxed differently:
- Short-Term Capital Gain (STCG) – If held less than 24 months
- Long-Term Capital Gain (LTCG) – If held more than 24 months
👉 STCG is taxed at your regular income slab rates.
👉 LTCG is taxed at 20% (with indexation benefit).
But can you reduce or avoid this legally?
Yes — and here’s how.
✅ 1. Claim Exemption by Reinvesting in a Residential Property (Section 54)
If you’re selling a residential property, you can save tax by:
- Buying another residential property in India, and
- Reinvesting the capital gains amount (not sale value)
Conditions:
- You must be an individual or HUF
- Purchase the new home within 1 year before or 2 years after the sale
- Or construct within 3 years from sale
- The new property must be in India
- Cannot sell the new property within 3 years
Example:
- Sold your old flat for ₹1.5 Cr
- Original purchase value (adjusted) = ₹90L
- LTCG = ₹60L
If you reinvest ₹60L in a new home, no capital gains tax is payable.
✅ 2. Invest in Capital Gains Bonds (Section 54EC)
Don’t want to buy another property?
You can invest in specified bonds issued by:
- REC (Rural Electrification Corporation)
- NHAI (National Highways Authority of India)
Key Points:
- Only for LTCG on land/buildings
- Investment limit = ₹50 lakhs per financial year
- Must invest within 6 months from sale
- Lock-in period = 5 years
Benefit:
Your invested amount in these bonds is fully exempt from LTCG tax.
✅ 3. Reinvest in Agricultural Land (Section 54B)
This one’s for farmers or owners of agricultural land.
If you:
- Sell agricultural land (rural or urban), and
- Reinvest in another agricultural land
👉 You can claim capital gains exemption.
Conditions:
- You (or your parents) must have used the land for agriculture in last 2 years
- Reinvestment must be within 2 years
- You can’t sell the new land for 3 years
✅ 4. Use Capital Gains Account Scheme (CGAS)
Need more time to reinvest?
Don’t worry.
You can park the gains temporarily in a government-approved account under CGAS.
Key Facts:
- Opened with nationalised banks (like SBI)
- Deposited amount is considered as “reinvested” for Section 54/54F
- Funds must be utilised within the specified timeframe (2–3 years)
If unused, the amount will be taxed in the year of expiry.
✅ 5. Exemption for Rural Agricultural Land
If you’re selling rural agricultural land, there’s no capital gains tax at all.
Why?
Because under Section 2(14) of the Income Tax Act, rural agricultural land is not a capital asset.
Criteria:
- Located beyond municipal limits (population-based distance)
- Must not fall under specified urban limits
- Used for agriculture purpose
✅ 6. Gift Property Instead of Selling
Want to pass on property to a relative?
Gifting is a tax-efficient method.
- No capital gains tax is levied on gifting
- But if the recipient sells it later, they will pay LTCG
Make sure the gift is properly registered and stamped.
✅ 7. Transfer to Spouse or HUF (With Caution)
You can explore transferring property to a spouse or HUF (not for evading tax but for planning purposes).
However:
- Clubbing provisions may apply
- The income from the transferred asset can still be taxed in your hands
💡 Always consult a lawyer before proceeding with this route.
🛑 Capital Gains Tax Saving – What NOT to Do
- Don’t under-report sale price — it’s illegal
- Don’t reinvest outside India — no exemption
- Avoid cash transactions above ₹20,000
- Never miss timelines for reinvestment or CGAS deposit
- Always maintain proper documentary proof — like allotment letter, sale deed, bond certificate, CGAS deposit slip
📑 Documents You’ll Need to Claim Exemption
- Registered sale deed
- Purchase deed of new property (if applicable)
- Bond certificate (if using 54EC)
- CGAS account details
- PAN card
- ITR and Form 26AS
📊 Quick Table: Capital Gains Tax Saving Options
| Section | Type of Sale | Reinvestment Option | Max Limit | Lock-In Period |
| 54 | Residential | Another residential home | No cap | 3 years |
| 54EC | Land/Building | REC/NHAI Bonds | ₹50L | 5 years |
| 54B | Agricultural Land | Other agri land | No cap | 3 years |
| CGAS | Any (temp holding) | CGAS account | NA | Varies |
📣 Call to Action
Don’t pay more tax than you legally should.
At RJ Property Law, we guide you through:
- Tax-efficient sale planning
- Claiming capital gains exemptions
- Preparing legally valid documents
- Filing accurate capital gains in your ITR
- Avoiding penalties, notices, or scrutiny
📧 Email: ranjinijayaram@rjpropertylaw.com
📞 Phone: +91 80884 17193
🌐 Website: www.rjpropertylaw.com
Let us help you protect your profit — the legal way.