10 Smart Ways to Save Tax When Selling Your Property

Table of Contents

• Maximize Your Gains, Minimize Your Tax Liability
• Who Levies Tax on Property Sales?
• Key Taxes Applicable on Property Sales
• Understanding Capital Gains
• Latest Updates on Capital Gains Tax (Budget 2024)
• TDS on Property Sales
• Indirect Taxes on Selling Property
• Essential Documents for TDS Payment
• Key Considerations for TDS
• How to Save Tax on Property Sale?
• Reinvesting in Property to Save Tax
• Capital Gain Account Scheme (CGAS) Explained
• Investing in Bonds (54EC) to Save Tax
• Final Thoughts: Smart Tax Planning for Property Sales
• Frequently Asked Questions (FAQs)

Maximize Your Gains, Minimize Your Tax Liability

Selling a property is a significant financial decision, and understanding the taxation aspects can help you retain more of your profits. Whether you're selling for investment purposes or personal reasons, knowing how to save tax on property sales is crucial.

This guide on Ghar breaks down applicable taxes, deductions, and strategies to legally reduce your tax burden.

1. Who Levies Tax on Property Sales?

Taxes on property sales are imposed at both central and state levels. While some taxes are paid by the buyer, sellers must bear specific levies, including capital gains tax and TDS (Tax Deducted at Source).

2. Key Taxes Applicable on Property Sales

• The primary taxes levied when selling property include:

• Capital Gains Tax – Tax on profits earned from property sales.

• TDS (Tax Deducted at Source) – 1% deducted by the buyer before payment.

• Indirect Taxes – Service tax and VAT (where applicable).

3. Understanding Capital Gains

Tax Capital gains tax depends on the duration of property ownership:

Short-Term Capital Gains (STCG): If you sell within 3 years of purchase, gains are taxed as per your income tax slab.

Long-Term Capital Gains (LTCG): If sold after 3 years, a flat 20% tax is applicable, plus a 3% cess.

4. Latest Updates on Capital Gains Tax (Budget 2024)

STCG Increased: Now taxed at 20% instead of 15%.

LTCG Revised: Increased from 10% to 12.5%.

Exemption Limit Raised: Now at Rs. 1.25 lakh under Section 112A.

5. TDS on Property Sales

Buyers must deduct 1% TDS from the sale amount if the property value is Rs. 50 lakh or more.

The buyer must deposit this TDS with the Income Tax Department.

TDS is not applicable on property sales below Rs. 50 lakh.

6. Indirect Taxes on Selling Property

Service Tax: Applicable if selling an under-construction property (3.75%-4.5%).

VAT: Levied by some state governments on under-construction property sales.

7. Essential Documents for TDS Payment

To deposit TDS while selling property, you need:

PAN card of buyer and seller Residential addresses Property details Agreement & payment dates

Total transaction value TDS can be paid online (via 26QB form) or offline at a bank.

NRIs must use Form 27Q.

8. Key Considerations for TDS

Seller must provide PAN card to the buyer for Form 16B.

Check Form 26AS to ensure correct TDS payment.

Late payment attracts penalties.

9. How to Save Tax on Property Sale?

Several strategies help reduce tax liability on capital gains:

Reinvesting in another property Capital Gain Account Scheme (CGAS) Investing in tax-saving bonds (54EC)

10. Reinvesting in Property to Save Tax

Under Section 54 of the Income Tax Act, 1961, individuals and HUFs can claim tax exemptions by reinvesting profits into another property within 3 years of sale.

This exemption applies only once in a lifetime and for properties valued up to Rs. 2.5 crore.

Example:

Arjun Mehta (IT Professional)

• Bought a property for Rs. 80 lakh in 2017.

• Sold it for Rs. 1.5 crore in 2024.

• If he reinvests in another house, he pays no capital gains tax.

Neha Sharma (Senior Architect)

• Sold a property in 2023 for Rs. 4 crore.

• Bought two residential properties worth Rs. 1.8 crore each.

• Full tax exemption availed up to Rs. 2.5 crore.

11. Capital Gain Account Scheme (CGAS) Explained

If you can't invest in property immediately, deposit your capital gains in CGAS (Capital Gain Account Scheme) in a public sector bank.

You get 3 years to reinvest before the amount becomes taxable.

12. Investing in Bonds (54EC) to Save Tax

Invest in NHAI (National Highways Authority of India) or REC (Rural Electrification Corporation) bonds. Invest within 6 months of property sale.

Maximum investment allowed: Rs. 50 lakh per financial year.

3-year lock-in period (No premature sale or loans against bonds allowed).

13. Final Thoughts: Smart Tax Planning for Property Sales

Understanding tax implications before selling your property can help you maximize profits. Whether reinvesting in real estate, using CGAS, or opting for 54EC bonds, plan wisely to reduce your tax burden and optimize your returns.

Frequently Asked Questions (FAQs)

Q1: Is TDS calculated on the total sale amount or the excess over Rs. 50 lakh?

A: TDS is calculated on the total transaction value if it exceeds Rs. 50 lakh.

Q2: Can I save tax if I don’t use the capital gains amount before filing returns?

A: Yes, by depositing the amount in CGAS, which allows up to 3 years for reinvestment.

Q3: How late can I invest in government bonds under Section 54EC?

A: You must invest in NHAI or REC bonds within 6 months of sale.

Q4: Where can I buy a property to claim a tax exemption?

A: The new property must be in India and purchased within 3 years of sale.

Q5: Who pays the taxes when selling a property?

A: The seller pays capital gains tax, while the buyer handles TDS and indirect taxes.

Q6: How much is LTCG tax on property sales? A: LTCG is 12.5% (previously 20%) as per Budget 2024.