Tax on Sale of Residential Property FY 2025-26 explains how capital gains from selling a house are taxed, applicable exemptions, reinvestment options, and CGAS rules.
How much tax you have to pay on the sale of your residential properties in FY 2025-26 ?
The Article on ” TAX PLANNING FOR FY 2025-26 CONTAINS 11 PARTS
PART I: MAJOR CHANGES IN TAX RULES FOR FY 2025-26
PART 2 : TAX SLABS /RATES FOR FY 2025-26
PART 3 : TAX REBATES FOR FY 25-26
PART 4 : CAPITAL GAIN TAX FOR FY 2025-26
PART 5 : TAX ON SALE OF RESIDENTIAL PROPERTY
PART 8 : INCOME TAX CALCULATOR FOR FY 2025-26
PART 9 : TAX ON RETIREMENT BENEFITS FOR FY 2025-26
PART 10 : HOW TO PAY INCOME TAX ONLINE?
PART 11 : TO KNOW ALL ABOUT TDS RATES ,
PART 5– CAPITAL GAINS TAX ON RESIDENTIAL PROPERTIESFOR 2025 -26
CAPITAL GAIN TAX EXEMPTION ON TRANSFER OF RESIDENTIAL PROPERTY
The capital gain exemption limit on residential property is primarily governed by Section 54 of the Income Tax Act
1. The ₹10 Crore Absolute Cap
The most significant limit is the ₹10 crore ceiling on the maximum exemption you can claim.
- This applies to both Section 54 (selling a house to buy a house) and Section 54F (selling other assets like gold/land to buy a house).
- Example: If you sell a property and make a capital gain of ₹15 crore, and you buy a new house worth ₹15 crore, your tax exemption will be capped at ₹10 crore. You will have to pay tax on the remaining ₹5 crore
The “Two Houses” Benefit (Limit: ₹2 Crore)
Usually, the exemption is allowed for the purchase of only one residential house. However, there is a special provision:
- If your Long-Term Capital Gain (LTCG) does not exceed ₹2 crore, you can invest in two residential houses in India and claim the exemption on both.
- Restriction: This “two-house” option can be exercised only once in a lifetime
3. Other Exemption Routes & Their Limits
| Section | Reinvestment Option | Exemption Limit |
| Section 54 | Purchase/Construction of a Residential House | ₹10 Crore |
| Section 54F | Reinvesting net proceeds from other assets (Gold/Shares) into a House | ₹10 Crore |
| Section 54EC | Reinvesting in specified Bonds (NHAI, REC, PFC, IRFC) | ₹50 Lakh per financial year |
Key Conditions to Qualify
To avail of these exemptions on residential property, you must meet these criteria:
Holding Period: You must have held the property for at least 24 months before selling for it to qualify as a “Long-Term” gain.
Timelines for Reinvestment:
Purchase: You must buy the new house within 1 year before or 2 years after the date of sale.
Construction: You must complete construction within 3 years from the date of sale.
Location: The new residential property must be located within India.
Capital Gains Account Scheme (CGAS): If you haven’t bought the new house by the time you file your ITR (usually July 31), you must deposit the gain amount into a CGAS account with a public sector bank to keep the exemption valid.
Tax Rate if Exemption is Not Used
If you do not reinvest and choose to pay the tax:
- Rate: 12.5% without indexation (for properties sold after July 23, 2024).
Exception: For properties acquired before July 23, 2024, you can choose between 12.5% without indexation or 20% with indexation, whichever is more beneficial for you.
CAPITAL GAINS ACCOUNT SCHEME
While they sound similar, these two schemes serve very different purposes. One is a temporary parking spot for money you plan to spend on a house, and the other is a long-term investment to avoid paying tax without buying a new house.
1. Capital Gains Account Scheme (CGAS), 1988
This is essentially a temporary “safe house” for your money.
The Problem it Solves: If you sell a house in May 2025, you have until May 2027 (2 years) to buy a new one or May 2028 (3 years) to build one to save tax. However, you must file your tax return for that sale by July 31, 2026. If you haven’t spent the money on a new house by that filing date, the tax department will think you’ve kept the profit and will tax you.
The Solution: You deposit the unutilized profit into a CGAS Account at an authorized bank (mostly Public Sector Banks) before you file your return. This tells the government: “I haven’t spent it yet, but I’m promising to use it for a house soon.”
- Types of Accounts: * Type A (Savings): Like a regular savings account with liquid access.
- Type B (Term Deposit): Like an FD; offers higher interest but locks the money for 2 or 3 years.
- Withdrawal: You can only withdraw money for the specific purpose of buying/building a house.
- Failure to Use: If you don’t use the money within the 2 or 3-year limit, it becomes taxable in the year the limit expires.
2. Capital Gains Bond Scheme (Section 54EC)
This is an investment product. It is for people who have sold land or a building and do not want to buy another property but still want to save on tax.
Key Features:
- Eligibility: Only for gains from Immovable Property (Land or Building). You cannot use this for gains from shares or gold.
- Time Limit: You must invest within 6 months from the date of the sale.
- Investment Limit: Maximum of ₹50 Lakh per financial year.
- Lock-in Period: 5 years. You cannot sell these bonds or take a loan against them for 5 years.
- Eligible Issuers: Notified government-backed companies like NHAI, REC, PFC, IRFC, and HUDCO.
- Returns: They currently offer an interest rate of approximately 5.25% to 5.75% per year.
- Tax on Interest: The interest you earn every year is taxable as per your income slab. Only the initial capital gain (the principal) is exempt from tax.
BANKS ACCEPTING CGAS 1988 ACCOUNTS :
Capital Gains Account Scheme (CGAS) accounts were limited only to public sector banks. However, there has been a major update for FY 2025-26.
Under the Capital Gains Accounts (Second Amendment) Scheme, 2025 (notified in late 2024), the government significantly expanded the list to include major private sector banks
1. The Newly Authorized Private Banks (19 Banks)
You can now open a CGAS account in almost all major private banks. The 19 newly authorized private and small finance banks are:
- HDFC Bank
- ICICI Bank
- Axis Bank
- Kotak Mahindra Bank
- IndusInd Bank
- IDFC FIRST Bank
- Yes Bank
- Federal Bank
- Bandhan Bank
- RBL Bank
- IDBI Bank (Previously authorized, now explicitly included)
- Karnataka Bank
- Karur Vysya Bank
- City Union Bank
- DCB Bank
- South Indian Bank
- Dhanlaxmi Bank
- CSB Bank
- Tamilnad Mercantile Bank
2. Public Sector Banks (Nationalized Banks)
All branches of the following 12 public sector banks continue to accept CGAS deposits:
- State Bank of India (SBI)
- Bank of Baroda (BoB)
- Punjab National Bank (PNB)
- Canara Bank
- Union Bank of India
- Bank of India
- Indian Bank
- Central Bank of India
- Indian Overseas Bank
- UCO Bank
- Bank of Maharashtra
- Punjab & Sind Bank
Important Restrictions & Updates
- Non-Rural Branches Only: You can only open these accounts at non-rural branches. This means the branch must be in an area with a population of 10,000 or more (based on the 2011 census).
- Electronic Deposits: The 2025 amendment now officially recognizes electronic modes for deposits. You can fund your CGAS account via UPI, NEFT, RTGS, IMPS, and even Debit/Credit cards.
- Offline Process: While deposits have gone digital, the actual account opening usually still requires a physical visit to the branch with Form A, your PAN, and proof of the capital gains (like the sale deed of your property).
Note: If you already have a regular savings account with one of the private banks above, it is often much faster to open the CGAS account there since your KYC is already completed.
THIS ARTICLE CARRIES INFORMATION ON VARIOUS TAX PROVISIONS WHICH ARE GENERALLY USEFUL . YET IT DOES NOT CARRY ALL THE PROVISIONS AND HENCE YOU ARE ADVISED TO GO THROUGH INCOME TAX DEPARTMENT WEBSITES FOR AUTHENTIC COMPLETE INFORMATION. YOU MAY ALSO CONSULT A QUALIFIED TAX CONSULTANT / CHARTERED ACCOUNTANT FOR ANY CLARIFICATION. READERS ARE ALSO WELCOME TO SEND FEEDBACK , FORM AVAILABLE BELOW . WE ARE OPEN FOR CORRECTION IF NEEDED.
This article is for informational purposes only. It summarises updates from publicly available sources and AI-generated insights. We have extensively used information gathered from a reputed AI app in preparing this article We are not SEBI-registered investment advisors, and this content does not constitute investment advice