Taxation of Capital Gain

In case the residential property has been kept with you for more than three years, It will be long term capital gain.

Income tax on long term capital gains is 20% with indexation calculations.

Purchase price = X, purchase year = A, sale price = Y, sale year = B
Cost Inflation Index (CII) for year A = P, Cost Inflation Index (CII) for year B= Q
Indexed purchase price, Z = X * (Q/P)
Capital Gain, G = Y-Z
Tax with indexation = G * 20%

In case of long term gain, you can invest the amount again in buying another house (within a year of before selling or within 2 years after transfer) or construct another house within 3 years of sale. You may also Invest in capital gains bonds within 6 months of sale (Section 54 EC of the Income Tax Act) issued by Rural Electrification Corporation, National Highways Authority of India and National Bank of Agricultural and Rural Development.

In case you are not decided about buying new property but intend to buy one later and still want a deduction on the tax on your capital gain, you must invest whole amount in Capital Gains Scheme of Deposit Account, which can be opened in any public sector bank branch. But if this amount is not used for buying new house within three years, tax on long term capital gain have to be paid.

If the property is not kept for even three years, then whole gain is added to taxable income and taxed as per income tax slab rates.