In India, capital gains tax on property sales can be significantly reduced or avoided entirely by utilising legal exemptions under the Income Tax Act. But how to avoid capital gains tax on property? The most common strategies include reinvesting the proceeds in specified assets within the prescribed time limits. Section 54 allows exemption from long-term capital gains (LTCG) tax if the profit from selling a residential property is reinvested in another residential property.
How to Reduce Capital Gains Tax on Property?
You can follow these steps to reduce capital gains tax on property:
The new property must be purchased either one year before or two years after the sale, or constructed within three years. There's no limit on the number of properties you can buy, but the exemption is capped at the capital gains amount.
Another option is Section 54EC, where you can invest gains in specified bonds (like REC or NHAI bonds) within six months of the sale, with a maximum investment limit of Rs. 50 lakh per financial year. These bonds have a five-year lock-in period.
For those above 60 years, Section 54F provides an exemption if the sale proceeds from any asset (not just residential property) are used to buy a residential house. The entire sale amount must be invested, and the exemption is revoked if the new property is sold within three years.
Additionally, if you're unable to reinvest immediately, you can deposit the gains in a Capital Gains Account Scheme (CGAS) with any nationalised bank before the tax filing deadline to claim the exemption temporarily.
Short-term capital gains (STCG) on property held for less than 24 months can't be exempted but can be reduced by deducting expenses like stamp duty, registration fees, and improvement costs from the sale consideration.
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How to Avoid Capital Gains Tax on Property?
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2025-05-27T18:41:01+00:00 2025-05-27T18:41:03+00:00Comment
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