How to Calculate & Pay Capital Gains Tax on Property Sale in India (FY 2025–26) – Tax Saving Tips

Selling a property in Chennai, Bengaluru, or any major city is exciting. But after the celebration, the big question hits: “How much tax will I actually pay on my profit?”

Many homeowners are unaware that the money they earn from selling a house, flat, or plot — known as capital gains — is taxable. Miscalculations can cost lakhs of rupees, even if the sale seems straightforward.

This guide will walk you through step-by-step calculations, real examples, and smart tax-saving strategies so you know exactly what to expect. By the end, you’ll learn how to legally reduce your tax and keep more of your hard-earned money.

What is Capital Gains Tax?

In simple words, capital gains tax (CGT) is the tax on the profit you make when selling a property.

• If you buy a flat for ₹50 lakh and sell it later for ₹1.5 crore, the profit of ₹1 crore is the capital gain.
• How much tax you pay depends on how long you held the property and the type of property.

Types of Capital Gains: Short-Term vs. Long-Term

Understanding the difference is crucial. It affects your tax rate and planning.

1. Short-Term Capital Gains (STCG)

• Applies: Sale within 24 months (2 years) of purchase.
• Tax: Added to your annual income and taxed according to your slab (10%, 20%, or 30%).
• Example: You bought a Chennai flat in January 2024 and sold it in February 2025. Your profit will be taxed as part of your yearly income.

2. Long-Term Capital Gains (LTCG)

• Applies: Sale after 24 months of ownership.
• Tax: Flat 20% on profit after indexation (adjusting for inflation).

Tip: Vacant land may have slightly different rules — always check with a CA.

How to Calculate Capital Gains Tax (Step-by-Step)

Here’s the practical, easy-to-follow method.

Step 1: Full Sale Consideration

The total amount you receive as per the sale deed.

Example: ₹1,50,00,000

Step 2: Net Sale Consideration

Deduct expenses directly linked to the sale:

• Brokerage to agent
• Legal fees
• Stamp duty (if paid by seller)
• Advertising costs

Formula:

Net Sale Consideration = Full Sale Consideration – Sale Expenses

Step 3: Cost of Acquisition

This includes what you originally paid for the property plus stamp duty and registration fees.

Step 4: Cost of Improvement

Include major renovations like:

• Adding a new room or floor
• Kitchen/bathroom upgrades
• Permanent flooring

Minor maintenance and painting are not included.

Step 5: Apply Indexation (For LTCG)

Indexation adjusts your costs for inflation, reducing taxable gains.

Formula:

• Indexed Cost of Acquisition = Cost × (CII of Sale Year / CII of Purchase Year)
• Indexed Cost of Improvement = Cost × (CII of Sale Year / CII of Improvement Year)

Step 6: Final Capital Gain Calculation

• STCG: Net Sale Consideration – (Cost of Acquisition + Improvement Cost)
• LTCG: Net Sale Consideration – (Indexed Cost of Acquisition + Indexed Cost of Improvement)

Worked Example: LTCG Calculation

Scenario:

• Purchase: May 2011, ₹50,00,000 + ₹4,00,000 stamp duty
• Renovation: July 2017, ₹5,00,000
• Sale: September 2025, ₹1,50,00,000
• Sale Expenses: ₹1,50,000

CII Values: FY 2011–12 = 184, FY 2017–18 = 272, FY 2025–26 = 376

Calculations:

• Net Sale Consideration = ₹1,50,00,000 – ₹1,50,000 = ₹1,48,50,000
• Indexed Cost of Acquisition = ₹54,00,000 × (376/184) = ₹1,10,21,739
• Indexed Cost of Improvement = ₹5,00,000 × (376/272) = ₹6,91,176

LTCG: ₹1,48,50,000 – (₹1,10,21,739 + ₹6,91,176) = ₹31,37,085

Tax: 20% of ₹31,37,085 + 4% cess = ₹6,27,417

Without indexation, taxable gain would have been ₹89.5 lakh — saving tax on over ₹58 lakh!

How to Save Tax on LTCG

1. Buy a New House (Section 54)

• Invest your gains in a new property within 1 year before or 2 years after sale.
• Construction must finish within 3 years.
• You can buy 2 properties once in a lifetime if gain < ₹2 crore.

2. Capital Gains Bonds (Section 54EC)

• Invest up to ₹50 lakh in government-approved bonds (REC, NHAI, PFC, IRFC) within 6 months.
• Lock-in: 5 years

3. Capital Gains Account Scheme (CGAS)

• Deposit unutilized gains in CGAS if your filing deadline is approaching.
• Use later to buy/construct a house within allowed time.

Read also : Selling Property in 2025? New Capital Gains Tax Rules Could Cost You Lakhs

Paying Capital Gains Tax

1. Advance Tax

• If tax > ₹10,000, pay in installments:
• June 15 – 15%
• Sep 15 – 45%
• Dec 15 – 75%
• Mar 15 – 100%

2. File ITR

• Use ITR-2 (salaried/other income) or ITR-3 (business/professional income)
• Deadline: July 31

3. Pay Tax Online

• Use Income Tax e-filing portal, Challan 280

Important Points & Pitfalls

• Keep all documents: deeds, bills, receipts
• Under-construction flat: holding period starts from possession
• Co-owned property: gains split by ownership share
• Home loan principal counts toward acquisition cost, interest does not

Final Thoughts

Understanding capital gains tax is essential. Correct calculation, indexation, and exemptions under Section 54 / 54EC can save lakhs.

For more insights and property guidance, visit blog.maadiveedu.com.

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Frequently Asked Questions (FAQ) About Capital Gains Tax on Property Sale

1: What happens if I make a loss when selling my property?

• Short-Term Capital Loss (STCL): Can be set off against any other income except salary.
• Long-Term Capital Loss (LTCL): Can only be set off against other Long-Term Capital Gains.
• Carry Forward: You can carry forward unused losses for up to 8 years to offset future capital gains.

2: Is capital gains tax applicable on inherited property?

• No tax is applied when you inherit a property.
• Capital gains tax is applicable only when you sell the inherited property.
• For calculation, the Cost of Acquisition is considered as what the original owner (e.g., your parent) paid for the property.
• The holding period of the original owner is also included when determining if the gain is short-term or long-term.

3: How is capital gains tax calculated for property bought before 2001?

• For properties acquired before April 1, 2001, you can take the Fair Market Value (FMV) as of that date as the Cost of Acquisition.
• This significantly increases your cost base and reduces the taxable capital gain, helping you save tax.

4: Can I save tax on long-term capital gains from property sale?

Yes, legally reducing your tax is possible through:

1. Buying or constructing a new residential property (Section 54) within the allowed timeline.
2. Investing in government-approved capital gains bonds (Section 54EC) up to ₹50 lakh.
3. Depositing in a Capital Gains Account Scheme (CGAS) if you haven’t reinvested yet, before filing your ITR.

5: Does the holding period for an under-construction flat start from booking or possession?

• The holding period starts from the date of possession, not booking.
• This is important to determine whether the gain is short-term or long-term for tax purposes.

6: How is capital gains tax calculated if the property is co-owned?

• Capital gains are split according to each owner’s share in the property.
• Each co-owner calculates their gain individually, applies indexation if applicable, and pays tax as per their own income tax slab or LTCG rules.