Selling a property in India comes with its fair share of financial implications. Two of the most significant components that every seller must be aware of are Goods and Services Tax (GST) and Capital Gains Tax. Whether you’re a first-time seller or an experienced investor, understanding how these taxes work can save you from unexpected liabilities and even help you optimize your returns.

In this detailed guide, we’ll break down everything you need to know about GST on property sale and capital gains tax in India in a clear, simple, and engaging way.

What is GST in Real Estate?

GST (Goods and Services Tax) is a comprehensive indirect tax that replaced various other taxes in India. In the real estate sector, GST is applicable mainly on under-construction properties and certain services.

When is GST Applicable?

GST applies in the following cases:

  • On under-construction properties or flats purchased directly from a builder.
  • On commercial properties under construction.
  • On land and building sold as part of a works contract.

GST Rates in Real Estate (as of FY 2025):

Type of Property GST Rate
Affordable housing (under-construction) 1% (without ITC)
Non-affordable housing (under-construction) 5% (without ITC)
Commercial property (under-construction) 12% (with ITC)
Ready-to-move-in property No GST

Note: ITC = Input Tax Credit. Not available under new GST scheme for residential properties.

Does GST Apply on Resale of Property?

No, GST does not apply to the resale of property. This is because resale transactions are considered a transfer of immovable property, which is not treated as a supply of goods or services under GST.

So if you’re selling a:

  • Flat/apartment that has received its Occupancy Certificate (OC)
  • Land or fully constructed property

Then GST is not applicable on the sale.

What is Capital Gains Tax?

Capital Gains Tax is the tax levied on the profit (gain) earned from the sale of a capital asset, including real estate.

How is Capital Gain Calculated?

Capital Gain = Sale Value – (Purchase Cost + Improvement Cost + Transfer Expenses)

There are two types of capital gains based on the holding period:

Short-Term vs. Long-Term Capital Gains

Holding Period Type of Capital Gain Tax Treatment
Less than 24 months Short-Term Capital Gain Taxed as per income slab
More than 24 months Long-Term Capital Gain Taxed @ 20% with indexation

Indexation adjusts the purchase price for inflation, reducing your tax liability.

Current Capital Gains Tax Rates in India

Type Tax Rate
Short-Term Capital Gain (STCG) As per income slab
Long-Term Capital Gain (LTCG) 20% (with indexation)
LTCG on listed securities (above Rs. 1 lakh) 10% (without indexation)

Exemptions under Section 54, 54EC, and 54F

You can legally save on capital gains tax if you reinvest the gains as per provisions in the Income Tax Act.

1. Section 54:

Applicable: If you sell a residential property and reinvest in another residential property.

Conditions:

  • Purchase new property within 1 year before or 2 years after sale
  • Or construct a new house within 3 years
  • Exemption limited to capital gains amount

2. Section 54EC:

Applicable: On sale of land/building if reinvested in specified bonds (like REC, NHAI).

Conditions:

  • Invest within 6 months
  • Max investment: Rs. 50 lakh
  • Lock-in period: 5 years

3. Section 54F:

Applicable: Sale of any capital asset (not just residential property) Condition: Must invest entire sale consideration in one residential house.

Section Asset Sold Reinvestment Allowed In Max Limit
54 Residential house Another residential house Capital gains
54EC Land/building Bonds (NHAI, REC) Rs. 50 lakh
54F Any capital asset One residential house Full amount

How to Calculate Capital Gains Tax (with Example)

Example:

  • Property Purchase Year: 2013
  • Purchase Price: Rs. 50 lakhs
  • Sale Year: 2025
  • Sale Price: Rs. 1.2 crore
  • Improvement Cost: Rs. 5 lakhs
  • Expenses on sale: Rs. 1 lakh
  • CII in 2013: 220 | CII in 2025: 360

Indexed Purchase Price = (50,00,000 * 360) / 220 = Rs. 81,81,818

Capital Gain = Rs. 1.2 Cr – (Indexed cost + improvements + expenses) = 1.2 Cr – (81.81L + 5L + 1L) = Rs. 32.19 lakhs

Tax Payable = 20% of Rs. 32.19 lakhs = Rs. 6.44 lakhs (plus cess)

Reporting Capital Gains in ITR

You must disclose capital gains when filing your Income Tax Return (ITR):

ITR Forms:

  • ITR-2: For individuals with capital gains
  • Schedule CG: Specific section to report gains

Documents Required:

  • Sale deed
  • Purchase agreement
  • Property tax receipts
  • Improvement bills (if applicable)

TDS Applicability on Property Sales

For Residents:

  • 1% TDS if property sale value > Rs. 50 lakhs
  • Buyer deducts and deposits with government

For NRIs:

  • TDS ranges between 20%–30% depending on type of gain
  • Higher TDS if PAN is not provided

NRI-Specific Tax Rules

If you’re an NRI selling property in India, the taxation rules differ slightly:

  • TDS is deducted at 20% (LTCG) or 30% (STCG)
  • You can claim a refund if excess TDS is deducted
  • You’re eligible for exemptions under Section 54/54EC/54F
  • File ITR in India to claim refunds and report gains
  • May need a Lower Deduction Certificate (LDC) from Income Tax Officer to avoid high TDS

Tips to Save Tax Legally

  • Invest capital gains in another residential property (Section 54/54F)
  • Use capital gains bonds (Section 54EC)
  • Maintain all documentation: bills, registry, sale deed, etc.
  • Include improvement cost and sale expenses in calculation
  • Take professional help to optimize your tax liability
  • Use indexation benefit wisely for LTCG

FAQs on GST and Capital Gains Tax

Q1. Is GST applicable on ready-to-move-in flats?
A: No, GST is only applicable on under-construction properties.

Q2. Can I save capital gains tax by buying agricultural land?
A: Only Section 54B applies to agricultural land, not covered under 54/54F.

Q3. What if I miss the deadline to invest in Section 54 property?
A: You may need to deposit gains in the Capital Gains Account Scheme (CGAS).

Q4. Is TDS applicable even if I sell at a loss?
A: Yes, TDS is based on sale value, not profit.

Q5. Can NRIs repatriate the sale proceeds?
A: Yes, after paying taxes and as per FEMA rules, up to USD 1 million/year.

Conclusion

Understanding GST and capital gains tax on selling property in India is crucial for making informed decisions. Whether you’re a resident or an NRI, navigating tax rules smartly can help you retain more of your hard-earned money.

For most sellers, especially those dealing with high-value transactions or multiple assets, it’s wise to consult a tax advisor or chartered accountant.

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