The most important tax planning step happens before the sale agreement is signed — not after. Once the sale deed is registered and the money received, your options narrow significantly. Before signing:

Determine Holding Period

Calculate LTCG — The Correct Way (Post-Budget 2024)

Cost of Acquisition — What to Include

Once you know your LTCG — decide your exemption strategy before the sale is registered. The timing conditions of Sections 54, 54EC, and 54F all begin from the date of sale. Decisions made before the sale are proactive; decisions made months later are reactive — and often too late.

Property sale creates a TDS obligation — but for the buyer, not the seller. As a seller, understanding this helps you ensure your Form 26AS is updated correctly and your refund (if any) arrives promptly.

Section 194IA — Buyer Must Deduct TDS

NRI Seller — Higher TDS Rate

When the seller is an NRI, the buyer must deduct TDS at the applicable LTCG rate (12.5% + surcharge + cess on LTCG amount) — not the flat 1% applicable for resident sellers. On a ₹1.5 crore property with ₹1.1 crore LTCG, buyer deducts approximately ₹14–16 lakh as TDS. NRI sellers should apply for a Lower Deduction Certificate under Section 197 before the sale to reduce TDS to the actual tax after exemptions — preventing large amounts from being locked until ITR refund.

AIS Will Show the Transaction

The sub-registrar reports every property transaction to the Income Tax Department via SFT (Statement of Financial Transactions) — value above ₹30 lakh is reported. This data appears in your AIS (Annual Information Statement) under “Property Sale” within weeks of registration. The department knows about your sale before you file your ITR.

What to do: Download AIS in April — verify the property entry matches your sale price and details. If the AIS shows stamp duty value higher than sale price — both figures are recorded. Capital gains is computed on the higher of the two (stamp duty value or actual consideration).

Capital Gains Account Scheme (CGAS) — If Investment Not Yet Made

If your property sale is complete but you have not yet identified a new property or made the 54EC bond investment — and your ITR due date is approaching — deposit the unutilised LTCG amount in a Capital Gains Account Scheme (CGAS) account at any scheduled bank before filing the ITR.

File ITR-2 — Not ITR-1

Property sale creates capital gains — which requires ITR-2 (or ITR-3 if business income also exists). ITR-1 does not have Schedule CG and cannot be used when capital gains exist. Filing ITR-1 with a property sale in your AIS is an incorrect filing — it will generate a mismatch notice.

Inherited Property

Cost of acquisition for inherited property = the original purchase cost paid by the person who first bought it (not the market value at inheritance). Holding period includes the period the original owner held it. For property originally purchased before April 1, 2001 — use the higher of actual cost or Fair Market Value as on April 1, 2001 as the cost base. Inherited property almost always qualifies as LTCG because the combined holding period is typically long.

Joint Property Sale

When jointly owned property is sold, each co-owner computes and declares their proportionate share of capital gain independently in their own ITR. The exemption sections (54, 54EC, 54F) are also claimed independently by each co-owner — each gets their own exemption limits. Joint sellers with different tax situations should compute separately — one may benefit from exemption, the other may have a different strategy.

Agricultural Land

Rural agricultural land is not a capital asset — its sale has no capital gains tax. No exemption section needs to be applied because there is no taxable gain.
Urban agricultural land (within municipality jurisdiction above specified population) — IS taxable as capital gain. Verify the classification of your agricultural land before assuming it is exempt.

Under-Construction Property (Buyer’s Perspective)

If you sell a flat that is still under construction — the capital gain is computed and taxable in the year of sale. The developer’s possession certificate date does not defer the sale date — the agreement to sell is the trigger. Holding period is from original booking date to date of transfer agreement.

Capital gains on property is computed on the higher of: actual sale price OR stamp duty value (circle rate valuation) as on the date of transfer. This creates a problem when the property is sold below the circle rate — which is common in distressed sales, family transactions, or markets where circle rates are outdated.

Before Sale Registration

1. Calculate holding period — confirm LTCG vs STCG classification
2. Compute LTCG — run both grandfathering options if property purchased before July 23, 2024
3. Decide exemption strategy — Section 54, 54EC, 54F, or combination
4. Identify new property or bonds — before sale, not after
5. Check stamp duty value (circle rate) — ensure sale price is within 10% tolerance or above
6. NRI sellers: Apply for LDC — Section 197 Lower Deduction Certificate before sale to reduce buyer’s TDS deduction
7. Gather cost documents — original purchase deed, stamp duty receipts, renovation bills, brokerage receipts

On Sale Date

1. Confirm buyer will file Form 26QB and deposit 1% TDS if sale value above ₹50 lakh
2. Note the exact sale date — this starts all exemption and TDS clocks
3. Receive sale consideration via banking channel — cash above ₹2L violates Section 269ST

Within 6 Months of Sale

1. Invest in 54EC bonds if using this exemption — REC/PFC/IRFC/HUDCO/IREDA
2. Check Form 26AS — verify buyer’s TDS (Form 26QB entry) appears
3. Open CGAS account if new property not yet identified and ITR deadline is approaching

At ITR Filing Time

1. File ITR-2 — not ITR-1
2. Fill Schedule CG — property details, cost, sale price, improvement cost, LTCG computed
3. Claim exemptions in Schedule CG — Section 54/54EC/54F with investment details
4. Declare CGAS deposit if applicable — as unutilised exemption amount
5. Claim TDS credit — Form 26QB entry in TDS schedule
6. Pay advance tax if LTCG tax liability exceeds ₹10,000 — quarterly or lump sum before March 15

Scenario 1 — Full Reinvestment, Zero Tax

Meera sold her Delhi flat (bought 2011 for ₹35L) in August 2025 for ₹1.1 crore. LTCG (Option A: 12.5% without indexation): ₹1.1 crore − ₹35L = ₹75L × 12.5% = ₹9.375L. Option B: Indexed cost ₹35L × (estimated CII ratio) ≈ ₹66L, gain ₹44L × 20% = ₹8.8L — Option B lower. She chose Option B.

She bought a new flat for ₹90L within 8 months. Section 54 exemption = ₹44L (full gain). Tax = Zero. She also saved ₹15K by computing both options — not just assuming 12.5% is better.

Scenario 2 — Partial Exemption, Planned Tax Payment

Rakesh sold a plot (purchased 2015 for ₹18L) in October 2025 for ₹80L. No plans to buy property. LTCG = ₹80L − ₹18L = ₹62L. Tax at 12.5% = ₹7.75L.

He invested ₹50L in REC bonds within 6 months (Section 54EC). Exemption: ₹50L. Taxable LTCG: ₹12L. Tax at 12.5% + cess: ₹1.56L. He paid this as advance tax in March.

Result: ₹50L locked in REC bonds at approximately 5.25% for 5 years (₹2.625L annual interest, taxable). Net tax saving vs no bonds: ₹6.19L. Interest earned over 5 years: ₹13.125L (pre-tax). Strategy made financial sense despite the lock-in.

Scenario 3 — Missed 54EC Deadline, Full Tax

Sunita sold her shop in September 2025 for ₹65L. LTCG = ₹40L. She intended to invest in 54EC bonds but kept delaying, waiting for “a good time.” In April 2026 — 7 months after the sale — she finally visited the bank. The 6-month window had closed on March 2026. No exemption available.

LTCG tax: ₹40L × 12.5% = ₹5L + cess = ₹5.2L. Section 234B interest (advance tax not paid): approximately ₹3,640. Total: ₹5,2364. A single 6-month deadline, missed by one month, cost ₹5.2L that could have been saved entirely with timely action.