Capital Gains Tax on Property Sale in Kerala — LTCG, STCG and Exemptions

Selling property in Kerala? You may be liable to pay capital gains tax — and the amount can be significant. Understanding the difference between short-term and long-term capital gains, available exemptions and TDS obligations can save you lakhs. Here is the complete guide to capital gains tax on property sales in India for 2025.

What is Capital Gains Tax on Property?

When you sell an immovable property (land, flat, house) at a profit, the profit is called "Capital Gain" and is taxable under the Income Tax Act. The tax rate depends on how long you held the property before selling.

Short-Term vs Long-Term Capital Gain

Short-Term Capital Gain (STCG): If you held the property for 24 months or less (36 months for land prior to budget amendments), the gain is STCG. STCG is added to your total income and taxed at your applicable income tax slab rate (0% to 30%).

Long-Term Capital Gain (LTCG): If you held the property for more than 24 months, the gain is LTCG. LTCG on immovable property is taxed at 20% with indexation benefit (as per Budget 2024 — note: new flat 12.5% rate without indexation was proposed but complex transition rules apply — consult a CA for your specific case).

What is Indexation?

Indexation adjusts the cost of acquisition for inflation using the Cost Inflation Index (CII) published by the Income Tax department each year. This increases the effective cost of the property, reducing the capital gain and therefore the tax. For example, a property bought in 2005 for ₹20 lakh and sold in 2025 for ₹80 lakh may have an indexed cost of ₹60-65 lakh, making the taxable LTCG only ₹15-20 lakh instead of ₹60 lakh.

Key Exemptions on LTCG from Property

Section 54 — Purchase or Construction of Residential House: If LTCG from sale of a residential house is reinvested in purchasing/constructing another residential house within 2 years (purchase) or 3 years (construction), the LTCG is exempt up to the amount reinvested. Only one new house can be bought from the LTCG.

Section 54EC — Investment in Specified Bonds: LTCG can be invested in specified bonds (NHAI, REC, etc.) within 6 months of sale. Maximum investment is ₹50 lakh per financial year. These bonds have a 5-year lock-in period.

Section 54F — Sale of Non-Residential Property: If you sell a long-term non-residential capital asset (not house property) and invest the net sale consideration in a residential house within the specified time, the entire LTCG is exempt (proportionate if only a portion is invested).

TDS on Property Purchase — Section 194IA

The buyer of an immovable property with a sale value of ₹50 lakh or more must deduct TDS at 1% of the sale consideration and pay it to the government. The seller's PAN is mandatory for this. The TDS is paid using Form 26QB and the TDS certificate (Form 16B) is downloaded from TRACES and provided to the seller.

Failure by the buyer to deduct and pay TDS makes them personally liable for the tax plus 200% penalty.

Conclusion

Capital gains tax on property is a significant financial consideration for every property seller in Kerala. SPOTON's tax advisors compute capital gains, identify all available exemptions and file the ITR correctly. Contact us well before your property transaction to plan and minimise your tax liability.