Marketing a house you rented out? That’s fantastic news; but, keep in mind that your profit from it might be taxed. Every Indian property owner should be aware of the sale of rental property tax to prevent surprises and legally save money.
This is a basic road map to get you across it.
Is Tax Due When Selling Rental Property?
Definitely yes. Whether the property was rented or not, if you sell it for profit the gain is capital gains taxable.
The tax type remains the same; it is still handled as the sale of a capital asset regardless of the rental history.
What kind of tax app fits this?
The profit you make is known as capital gain; tax is determined by your length of property ownership.
- STCG: Short-Term Capital Gain
Should the house be sold two years following purchase,
- taxed in line with your income tax slab
- taxed in line with your income tax slab
- Long-Term Capital Gain (LTCG)
should the house be sold two years later
- taxed at twenty percent with indexing benefit
- Indexation reduces your purchase price by inflation, so saving tax.
- taxed at twenty percent with indexing benefit
Calculating Capital Gain: Techniques
Sale Price less Indexed Purchase Price less Expenses equals Capital Gain
Expenses could comprise:
- Agent fee or broker’s fee
- Legal obligations
- Expenses for improvement
- Stamp duty at the purchase time
For ₹40 lakh, for instance, bought a flat in 2015.
Auction it for ₹80 lakh in 2024.
Indexed cost following inflation comes to ₹60 lakh.
Brokerage and other expenses come to ₹2 lakh.
LTCG = ₹80 lakh less ₹60 lakh less ₹2 lakh = ₹18 lakh
Tax = 20% of ₹18 lakh = ₹3.6 lakh
Deductibles to Save Tax on Rental Property Sales
Using the following sections will help you either avoid or lessen taxes:
- Section 53
Purchase another house two years (or build in three years).
- LTCG will be free up to the amount reinvested.
- LTCG will be free up to the amount reinvested.
- Section 54E
Within six months invest up to ₹50 lakh in NHAI, REC capital gains bonds.
- Exemption up to the invested sum
- Exemption up to the invested sum
- Section 54F covers cases whereby the full sale value is invested in another residential house.
- For property other than residential, used by individuals and HUFs
- For property other than residential, used by individuals and HUFs
Key Advice:
- Store purchase and selling records securely
- Gather receipts for claims on improvement expenses
- Before you sell, think about tax planning; not after
- TDS at 20%–30% could apply on sale proceeds if you are an NRI
- File your ITR claiming full details of capital gains and exemptions together
In essence, conclusion
When you sell your property for a profit, you must pay the sale of rental property tax. But you can lower the tax or perhaps avoid it entirely with careful application of legal exemption. To keep your money safe—and legal—always plan ahead, compute accurately, and file your return on schedule.
