The gain is the sale price (or the stamp duty value, if higher, within the Act’s tolerance) minus the cost of acquisition, the cost of improvement and transfer expenses such as brokerage. The Income-tax Act sets a holding period: property held longer counts as long-term and is taxed at a separate rate, while short-term gains are added to the seller’s income.
Sellers can reduce or avoid long-term gains tax through exemptions, such as reinvesting in another residential house or in specified bonds within set time limits and conditions. Rates, holding periods and exemption limits have changed in recent budgets, so sellers should check the current rules on the Income Tax Department’s site or with a chartered accountant.
When the seller is a non-resident, the buyer must deduct TDS at the rates for non-residents, usually on the full sale price unless the seller obtains a lower-deduction certificate from the Income Tax Department — which is why brokers flag NRI status early.
Example
A seller in Ahmedabad bought a flat in 2015 for ₹45 lakh, paid ₹2 lakh registration costs and sells it now for ₹90 lakh, paying ₹90,000 brokerage. The gain before any exemption is ₹90 lakh minus ₹47 lakh and ₹90,000, roughly ₹42 lakh. Whether it is long-term and how it is taxed depends on the current Act.
Figures are illustrative, not market rates.
Questions about Capital gains on property
Is brokerage deductible from capital gains?
Yes. Expenses incurred wholly and exclusively for the transfer, such as brokerage and legal fees, are deducted from the sale consideration when working out the gain. Keep the invoice and proof of payment.
Can I save tax by buying another house?
The Income-tax Act gives exemptions for reinvesting long-term gains in a residential house or specified bonds, within time limits and caps. The conditions are strict, so check the current provisions or speak to a chartered accountant before the sale.
Sources
- Income Tax Department, e-filing portal · accessed
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