Complete guide to real estate taxes in India: capital gains, GST, TDS, stamp duty & registration. Includes LTCG exemptions under Section 54/54EC and rules for agricultural land.
Investing in real estate in India can be highly rewarding, but understanding the tax implications is critical to maximize returns and avoid legal issues. Taxes vary depending on whether you are buying or selling, the type of property, and how long you’ve held it. This guide covers everything from capital gains to GST, TDS, and exemptions, with examples and practical advice.
Taxes for Buyers
1. GST (Goods & Services Tax)
- Applicable only on under-construction properties; resale or fully completed properties are exempt.
- Rates: 5% for residential, 18% for commercial properties.
- Ensures compliance with government regulations for developers.
2. TDS (Tax Deducted at Source)
- On properties above ₹50 lakh, buyers must deduct 1% of the sale value as TDS and deposit it with the government.
- TDS is adjustable against the seller’s tax liability, so it does not increase overall taxation if properly filed.
- In simple words, Buyer always pays TDS, Seller receives net amount.
- Seller then claims this TDS credit while filing taxes.
3. Stamp Duty & Registration Charges
- Paid by the buyer at the time of purchase, even in resale transactions.
- Rates vary by state, generally 5–8% of the property value.
- Women get half or a point percentage off.
- Covers official registration of property, making ownership legally valid.
Taxes for Sellers
Capital Gains Tax (CGT)
Capital gains tax applies to the profit made from selling a property.
a) Short-Term Capital Gains (STCG)
- Applies if property is sold within 24 months (2 years) of purchase.
- Taxed at normal income tax slab rates.
b) Long-Term Capital Gains (LTCG)
- Applies if property is sold after 24 months.
- Tax rate: 20% plus surcharge and cess after indexation, which adjusts the purchase price for inflation.
Example:
- Buy a plot for ₹50 lakh in 2015.
- Sell in 2025 for ₹1.5 crore.
- Indexed cost = ₹1 crore.
- LTCG = ₹1.5 crore – ₹1 crore = ₹50 lakh.
- Tax = 20% of ₹50 lakh = ₹10 lakh (approx.)
LTCG Exemptions
1. Section 54 — Reinvest in Residential Property
- If you sell a long-term asset (house/land held >2 years) and invest the proceeds in a new residential property, you can claim LTCG exemption.
Conditions:
- Property must be in India.
- Investment must be made 1 year before or 2 years after the sale (or 3 years for under-construction property).
- Only residential property qualifies; commercial or farmland does not.
- Exemption applies up to the amount of capital gains reinvested.
Example:
- Sell house for ₹1.5 crore (bought for ₹50 lakh, indexed cost ₹80 lakh) → LTCG = ₹70 lakh
- Buy new house for ₹70 lakh → Entire LTCG exempt
- Buy new house for ₹50 lakh → ₹50 lakh exempt, ₹20 lakh taxed at 20%
Notes:
- Stamp duty & registration for the new property cannot be claimed as exemption.
- Partial reinvestment = only the reinvested portion exempt.
2. Section 54EC — Investment in Specified Bonds
- Instead of property, invest in NHAI (National Highways Authority of India) or REC (Rural Electrification Corporation) bonds within 6 months of sale.
- Maximum investment: ₹50 lakh per financial year.
- Lock-in period: 5 years.
- Exemption applies only for the invested amount, remaining gains are taxed at 20% with indexation.
Other Considerations
- Agricultural land in rural areas is generally exempt from GST and LTCG tax. Gains from such land can be freely used without restrictions.
- Always keep proof of sale, bank transfers, and registration receipts for future verification.
- Hiring a revenue lawyer or advocate is recommended to ensure proper title verification and compliance with government records.
Practical Tips for Investors
- If buying under-construction properties, calculate GST into your investment.
- For high-value transactions, ensure TDS is deducted and filed properly.
- Plan LTCG exemptions in advance to legally save taxes.
- Document every rupee spent on purchase and reinvestment for future audits.
- If investing in agricultural land, check location and government plans to maximize long-term benefits.
Conclusion
Understanding real estate taxes in India is crucial for profitable investments. Buyers need to account for GST and TDS, while sellers should plan for capital gains, stamp duty, and registration charges. Sections 54 and 54EC provide exemptions for smart reinvestment, and agricultural land offers additional tax-free benefits. Proper planning, documentation, and professional guidance can save lakhs in taxes and ensure legal compliance.
Key Takeaways:
- LTCG on property sold >2 years = 20% after indexation
- Section 54: reinvest in residential property
- Section 54EC: invest in NHAI/REC bonds
- Rural agricultural land is mostly tax-free
- Buyer pays stamp duty & registration; seller handles capital gains
