Selling an old property? Here’s how capital gains tax will work under the new tax rules

How is income tax calculated on property bought before 2023?

Selling an old, partly self-completed property can make capital gains taxation tricky, especially with the new rules kicking in. Today's Ask Wallet Wise query decodes how the tax will be calculated on your Patna flat bought in 1997 and sold in 2025.

Moneycontrol's Ask Wallet Wise initiative offers expert advice on matters of personal finance and money. You can email your queries to askwalletwise@nw18.com, and we will try and get a top financial expert to address your queries.

I have a flat in Patna bought in 1997, but the apartment was not completed by the builder. I got the flat registered in my name in 2007 by an order of the district authorities, which unilaterally showed the total consideration as Rs 3.65 lakh. I later completed the unfinished flat at an additional cost of around Rs 3 lakh. Now, the flat has been sold for Rs 34 lakh in August 2025. What will be my capital gains tax liability? Will the new taxation rules apply to me?

Expert's Advice: The Finance Act, 2024 has rationalised and streamlined the taxation of long-term capital gains. Instead of three different holding period requirements to classify assets as long term, this has now been reduced to two. Except for listed securities and equity-oriented schemes, which require a 12-month holding period, all other capital assets now have a uniform 24-month requirement except profits from debt fund schemes, which will be treated as short-term capital gains regardless of the holding period.

The benefit of indexation has also been withdrawn, except for the limited purpose of computing tax liability on land and buildings acquired before 23 July 2024 and sold by an individual or HUF.

If you do not wish to pay tax, you can claim an exemption under Section 54 by investing the difference between your actual cost and the sale price into another residential house. If you do not want to buy a house, you can still save tax by investing this amount in capital gain bonds of specified financial institutions within six months from the date of sale.

For computing capital gains, the value adopted for registration of the unfinished flat is not relevant. What matters is the amount actually paid by you.

If you do not want to avail of exemptions, you have two options. Under the first, you can pay tax at a flat 12.5 percent plus cess and applicable surcharge on the difference between your cost and the sale price. Under the second option, you can index your total cost which includes the amount paid to the builder and the cost you incurred to complete the flat.

Since the market value of the unfinished flat is difficult to determine, you can take the amount paid to the builder as the fair market value as of 1 April 2001 and apply indexation from that date. For the Rs 3 lakh spent on construction, you can apply indexation from the year in which the expense was incurred. The combined indexed cost becomes your total indexed cost of acquisition. After reducing this indexed cost from the net sale price, you arrive at the taxable indexed long-term capital gain, on which tax is payable at 20 percent.

You should compare the tax payable under both options and choose the one with the lower liability.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.

AskWalletWise-card