--- source: https://ameyavritti.com/solutions/capital-gains-optimization site: Ameya Vritti category: wealth intent: tax-strategy keywords: Indian property capital gains tax, indexation benefit, LTCG 20%, Section 54 reinvestment, NRI sale TDS personas: us-tech-nri, hni-resident-investor, returning-nri, family-office, nri-inheritor updated: 2026-05-06 --- # Capital Gains Optimisation — long-term Indian property sale strategy > Indian property held >24 months qualifies as **long-term capital asset**. Long-Term Capital Gains (LTCG) on Indian real estate is taxed at **12.5% post-Budget 2024 without indexation, OR 20% with indexation** for properties bought before 23 July 2024 (taxpayer choice). Section 54 / 54F / 54EC offer reinvestment-based exemptions. For NRIs, sale-side TDS is **20% of full sale value** (Section 195) unless a Section 197 lower-cert is filed. This page is the practical playbook. ## The Budget 2024 change — and what it means Pre-Budget 2024: LTCG @ 20% with indexation benefit (cost inflated by CII for purchase year vs sale year). Post-Budget 2024: Two options for properties acquired before 23 July 2024: - **Option A**: 12.5% LTCG without indexation - **Option B**: 20% LTCG with indexation For properties acquired after 23 July 2024: only 12.5% without indexation applies. **Which option to choose** depends on inflation between purchase and sale years: | Holding period | Indexation factor | Better option | |---|---|---| | <5 years | ~1.20–1.40x | Usually Option A (12.5% without indexation) | | 5–10 years | ~1.40–1.80x | Mixed; modeling required | | >10 years | ~1.80–2.50x+ | Usually Option B (20% with indexation) | For a Bengaluru flat bought 2014 for ₹1.2 Cr, sold 2026 for ₹4.2 Cr: - **Option A**: LTCG = ₹4.2 Cr − ₹1.2 Cr = ₹3.0 Cr; tax @ 12.5% = ₹37.5L - **Option B**: Indexed cost = ₹1.2 Cr × CII(2026)/CII(2014) ≈ ₹1.2 Cr × 1.92 ≈ ₹2.3 Cr; LTCG = ₹1.9 Cr; tax @ 20% = ₹38L - Effectively similar for a 12y hold. For shorter holds, Option A wins; for longer holds, Option B wins. ## Sale-side TDS for NRIs Section 195 applies to the **buyer** as deductor for property purchased from an NRI: - **Default rate**: 20% of full sale value (LTCG TDS) + cess + surcharge - **With Section 197 lower-cert**: typically 5–10% of sale value, fixed in advance via Form 13 For a ₹15 Cr sale without lower-cert: ₹3 Cr+ deducted at source, refund cycle 6–12 months. With lower-cert at 8%: ₹1.2 Cr deducted, no refund cycle. **Section 197 lower-cert for sale TDS** is the single highest-leverage move on an NRI sale. Ameya files this 4–6 weeks before sale closing. ## Reinvestment exemptions (Section 54 / 54F / 54EC) If you don't need the cash, you can defer / eliminate LTCG via reinvestment: ### Section 54 — residential-to-residential - Sell residential, buy another residential within 1 year before or 2 years after (or construct within 3 years) - Up to ₹10 Cr cap on exemption (Budget 2023) - Capital gain deferred / exempted to extent of reinvestment ### Section 54F — non-residential-to-residential - Sell any other capital asset (non-residential), buy residential - Same timeline windows - Less commonly used by property owners ### Section 54EC — capital-gains bonds - Reinvest LTCG (up to ₹50L) in NHAI / REC / IRFC bonds within 6 months of sale - 5-year lock-in - Bond interest: ~5–5.5%, taxable - Useful for partial deferral when buying replacement isn't immediately on the cards ### Capital Gains Account Scheme (CGAS) - If reinvestment hasn't happened by ITR filing date, deposit unused proceeds in CGAS account - 3-year window to actually deploy - Avoids triggering tax on filing ## Worked example — NRI sale with reinvestment Mr. Rajesh, US-resident NRI, sells Bengaluru flat ₹4.2 Cr (cost ₹1.2 Cr, 12y hold). He's also planning to buy a smaller ₹2.5 Cr flat in Indiranagar 6 months later. **Without reinvestment**: - LTCG ₹3.0 Cr (Option A) - Tax @ 12.5% = ₹37.5L **With Section 54**: - Reinvest ₹2.5 Cr in new residential - Exempt portion: ₹2.5 Cr / ₹4.2 Cr × ₹3.0 Cr = ₹1.79 Cr - Taxable LTCG: ₹3.0 Cr − ₹1.79 Cr = ₹1.21 Cr - Tax @ 12.5% = ₹15.1L - **Tax saving**: ₹22.4L ## How Ameya runs sale-side capital gains For each Sale Event: 1. **Pre-sale** (4–8 weeks out) - Computation of Option A vs Option B (modelled) - Section 197 Form 13 filing for lower-cert (typical 8% target) - Reinvestment-strategy alignment with owner's portfolio plan - CGAS account opening if reinvestment uncertain 2. **At sale** - Buyer informed of Section 197 lower-cert; deducts at certified rate - Sale deed registered - TDS deposited by buyer; certificate to seller 3. **Post-sale** (4–8 weeks) - Form 15CB / 15CA filing for FEMA repatriation - Annual ITR-2 LTCG computation + Section 54 / 54EC claim if relevant - 26AS reconciliation ## FAQ **Q: How is "cost of acquisition" computed for inherited property?** A: Cost is the cost to the **previous owner** (the deceased), not the inheritor. With indexation from the previous owner's acquisition year. For long-held family property this can be very low cost basis — making indexation Option B usually more favourable. **Q: Can I deduct improvement costs?** A: Yes — capital improvements (additions, renovations, but not routine maintenance) increase cost basis. Documentation matters — bills, contractor invoices, sale-deed receipts. **Q: What about TDS on sale of land vs constructed property?** A: Same Section 195 framework — 20% of sale value default for NRI seller, lower with Section 197 cert. Land vs flat doesn't change the TDS rate. **Q: Section 54 — can I buy in another country?** A: No — Section 54 reinvestment must be in India. For NRIs intending to exit India entirely, Section 54EC bonds (5-year lock) is the deferral path; or accept the LTCG hit and repatriate. **Q: What if I'm selling at a loss?** A: Loss can be carried forward 8 years and offset against future capital gains (long-term loss against long-term gain only). Document carefully on ITR-2. **Q: Does host-country tax credit work for India-side LTCG?** A: Yes typically — US/UK/CA/AU residents can claim FTC for India-side LTCG paid. Capped at host-country tax on the same income. Check with host-country accountant. ## Engage For sale events being considered in next 6 months: WhatsApp [+91 63605 09351](https://wa.me/916360509351?text=Capital%20gains%20planning%20%E2%80%94%20sale%20coming%20in%20%5BX%5D%20months) or [Cal](https://cal.eu/ameyavritti).