How To Save Capital Gains Tax on the Sale of a Residential Property

Property remains a valuable investment, offering opportunities for rental income or resale. When selling residential property, it’s crucial to consider associated tax implications. When selling a residential property in India, you incur a tax known as capital gains. While evasion is illegal, there are strategies to reduce the amount owed.

If you are in the market to sell a residential house or flat, here is everything you need to know about how to save capital gains tax on the sale of a residential property.

How to Save Capital Gain Tax on the Sale of Property?

Before getting into the practical details of how to save capital gain tax on property, it’s important to understand what capital gains tax entails. Capital gains tax is of two kinds, long-term capital gains tax (LTCG) and short-term capital gains tax (STCG).

Selling a property held for over two years qualifies it for long-term capital gains tax at a flat rate of 20%. Explore exemptions and strategies to minimise this tax.

Indexation Benefit: One of the best ways to reduce the amount of capital gains tax payable is to leverage indexation. If you’re unfamiliar, indexation is a process by which the purchase cost of your property is adjusted according to inflation. As a result, the amount of capital gains you earn is lowered and so is the tax levied on it. Do note that if you want to leverage the benefit of indexation, it is best to hold your property for at least two years since the process is only applicable to long-term capital assets. 

Joint-Ownership: Logically, another way to reduce capital gains tax is to reduce the amount of capital gains earned by the seller. As a pre-emptive move, you can opt to co-own the property you plan to sell. So, when you do sell the property, the capital gains from the transaction are split between you and the co-owner based on the ownership share. When you do this, you and the co-owner can use the basic tax exemption available to both of you and reduce the overall tax liability.

Manage Selling Expenses: Another strategy you can apply is to be mindful while calculating capital gains. Make sure to subtract certain selling expenses from the sale price. You can deduct expenses like the brokerage fees to reduce the capital gains, and in turn the tax amount payable. If you have lived in the house or apartment, you should save the receipts showing expenses incurred on improving or renovating the space. Doing so can help reduce the amount of capital gains that are taxable since such expenses fall under the category of cost of maintaining the house.

Buying New Property: A very popular way to save up on capital gains tax is to reinvest the profits from the sale into another residential property. To qualify for this exemption under Section 54 of the Income Tax Act, 1961, you must purchase the new property either one or two years after the initial sale transaction. You can also make the most of the exemption if you construct a new property within three years after the transaction. ASG Developers allows you to choose from an array of comfortable ready-to-move and under-construction properties all over Mumbai and Thane.

Investing in Bonds: If you’re not interested in immediately investing in property, you can also invest your capital gains tax in government-specified bonds. Doing so allows you to enjoy a tax exemption. However, a pre-requisite is that you must invest in the instruments within six months of selling your property. Do note that such bonds usually come with a lock-in period of at least 5 years.

Capital Gain Account Scheme: If neither bonds nor property seems like the right investment for you, you can always invest in a Capital Gains Account Scheme (CGAS). The scheme is provided by public banks for a specific assessment year. You can claim exemptions for the money in CAGS while filing your income tax returns. However, do note that you must use the deposited amount within three years, or you will be liable for paying tax.

Reinvestment: If you want to save up on capital gains tax, you can make the most of the exemption under 54GB of the Income Tax Act, 1961. You can invest the money in shares of an eligible company or a start-up.

Armed with these strategies, how to save capital gain tax on the sale of residential property is a question you can easily answer.


An individual of or above the age of 60 enjoys a long-term capital gain exemption of up to Rs 3,00,000. The limit is Rs. 2,50,000 for an individual below the age of 60 years.

One of the most popular ways to save long-term capital gains tax on the sale of property is to reinvest the sum in another residential property within one or two years.

The methods to save on capital gains tax after selling residential property are the same for senior citizens as they are for others.

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