Sold Property in FY 2024–25: A Simple Guide to Tax Rates & Exemptions

Selling a property usually brings a big financial gain, but it also means tax responsibilities. If you sold a property in the Financial Year 2024-25, you need to know how the profit, called capital gains, is taxed. The good news is that the Income Tax Act includes several ways to save on this tax.

This guide covers the tax rates on property sales and describes the three main exemptions under Sections 54, 54EC, and 54F in a simple way.

First, Is Your Profit Short-Term or Long-Term?

The tax you owe depends on how long you owned the property. In India, a property is a long-term capital asset if you hold it for more than 24 months.

• Short-Term Capital Gain (STCG): If you sell the property within 24 months of buying it, the profit is STCG. This gain gets added to your total income and is taxed at your applicable income tax rate.
• Long-Term Capital Gain (LTCG): If you sell the property after you have owned it for more than 24 months, the profit is LTCG.

What are the Tax Rates for FY 2024-25?

For Short-Term Capital Gains (STCG):

The profit gets added to your annual income and is taxed at the rate of your income tax bracket. For example, if you fall under the 30% tax bracket, your STCG will also be taxed at 30%.

For Long-Term Capital Gains (LTCG):

For properties sold in FY 2024-25:

• The gain is taxed at a flat rate of 20%, and you can take advantage of indexation. Indexation adjusts the property's purchase price for inflation, which effectively lowers your taxable profit.
• For properties sold on or after July 23, 2024, you can choose to be taxed at 12.5% without indexation. Residents who bought their property before this date can select either option (20% with indexation or 12.5% without) to minimize their tax payment.

Tax-Saving Exemptions: Your Key to Lowering Taxes

The Income Tax Act provides helpful exemptions to encourage reinvestment. Here are the three most common ones for property sellers.

1. Section 54: Selling a House to Buy Another House

• Who can claim it? Individuals and Hindu Undivided Families (HUFs).
• Condition: You must sell a residential house and reinvest the long-term capital gain amount in a new residential house in India.
• Reinvestment Timeline: Buy a new house either one year before the sale or within two years after selling your old property. Construct a new house within three years from the date you sold the old property.
• How much can you save? The exemption amount is the lower of the capital gain or the cost of the new house. To receive a full exemption, your investment in the new property must be equal to or greater than your capital gain. A cap of ₹10 crore on the exemption applies from Assessment Year 2024-25 onwards.
• One-Time Opportunity: If your total capital gain is up to ₹2 crore, you have a one-time chance to invest in two residential properties to claim this benefit.

Example: You sold a house and earned a long-term capital gain of ₹40 lakh. You buy a new house for ₹35 lakh. You can claim an exemption of ₹35 lakh, leaving you to pay tax on the remaining ₹5 lakh.

2. Section 54EC: Investing Gains in Specific Bonds

• Who can claim it? Any taxpayer (individuals, HUFs, companies, etc.).
• Condition: You must invest the long-term capital gain amount from selling land or a building into specific bonds.
• Specified Bonds: Known as "capital gains bonds,” these are issued by entities like the National Highways Authority of India (NHAI) and Rural Electrification Corporation (REC).
• Reinvestment Timeline: The investment needs to be made within six months from the date of selling the property.
• How much can you save? You can invest a maximum of ₹50 lakh in these bonds in a given financial year. The bonds have a mandatory lock-in period of five years.

Example: You have a long-term capital gain of ₹30 lakh from selling a plot of land. To claim a full tax exemption, you can invest this entire amount in NHAI or REC bonds within six months.

3. Section 54F: Selling Any Asset to Buy a House

• Who can claim it? Individuals and HUFs.
• Condition: You must sell a long-term capital asset (not a residential house) and reinvest the entire sale amount (net consideration), not just the profit, to buy or build a new residential house.
• Important Rider: To claim this, you should not own more than one residential house (other than the new one) on the sale date.
• Reinvestment Timeline: Same as Section 54—purchase within one year before or two years after the sale, or build within three years.
• How much can you save? If you invest the entire sale proceeds, your entire capital gain is exempt. If you invest only part of the amount, the exemption is calculated proportionately.

Example: You sell a plot of land for ₹80 lakh (net consideration) and make a capital gain of ₹30 lakh. To get the full ₹30 lakh exemption, you need to buy a new residential house worth at least ₹80 lakh.

What if You Can't Reinvest Immediately?

If your tax filing deadline is approaching and you haven’t invested the gains yet, you can deposit the unused amount into the Capital Gains Account Scheme (CGAS) at a public sector bank. This deposit shows your intention to reinvest and allows you to claim the exemption on your tax return. However, you must use the deposited amount within the timelines set by the respective sections (2 or 3 years).

Final Word

By understanding these rules and planning ahead, you can greatly reduce your tax liability on property sales and maximize your investment.

Leave a reply