Selling your home? How to lower capital gains taxes

By Bricksnwall | 2026-04-19

Explaining capital gains tax: Buy a new property within one year before or two years after selling the old one to claim exemption. 

Amit, a paid professional in Bengaluru, sold his residential unit for ₹1.2 crore, generating a ₹45 lakh long-term capital gain. He properly reinvested this earnings instead of paying tax. In six months, he rented an under-construction condo and put profits toward the down payment. 

He put the rest of the money he didn't use into a Capital Gains Account Scheme account before filing his income tax return because the project would take time. He took money out of this account on a regular basis over the next two years to pay the builder when each stage of building was finished.

When you sell a house, you make money on the sale. Using specific parts of the Income Tax Act, you can, however, save money on taxes on capital gains. 

Vishal Gada, founder and CEO of Aurtus, a full-service tax firm, says, "The income tax provisions let people and Hindu Undivided Families (HUFs) claim an exemption on long-term capital gains from selling a residential house property as long as the money is used to buy another residential house in India." 

Time limits for buying and building

"This falls under Section 54 of the Income Tax Act 1961 and is the same as Section 82 of the Income Tax Act 2025. "However, both sections are similar," explains Anil Harish, Managing Partner at D.M. Harish & Co.

To be eligible, the taxpayer must follow a very specific legal time frame. 

The new residence must be built within three years of the original transfer date.

In real life, this difference between buying and building is quite important. People usually use the three-year window when they are building a home or when the taxpayer is doing it on their own.

"Some courts have been more realistic when delays were out of the taxpayer's control, but the tax authorities generally expect these deadlines to be met. Kunal Sharma, Managing Partner of TARAksh Lawyers and Consultants, adds, "Any delay beyond the given period could put the exemption at risk unless the facts are very strong." 

Plan for capital gains accounts

"The capital gains account scheme (CGAS) helps you keep your exemption if you can't reinvest your capital gains right away. Abhishek Soni, CEO of Tax2Win, an income tax portal, states, "If you don't use all of your capital gains before you file your income tax return under section 139(1), you must deposit the unused amount in a CGAS account before the due date of filing the return." 

This deposit is seen as a reinvestment, which means the exemption will stay in place. The money that was put down must be used to buy a home or build one within two years of the deposit being made.

The November 2025 change made the program much more modern and easier to use. A "Deposit Office" now includes approved private-sector institutions, which goes beyond the usual reliance on public-sector banks. It also clearly states that electronic methods (UPI, RTGS, NEFT, etc.) are acceptable for depositing money. 

To get the exemption, the deposit must be made before the original income tax return is filed or before the original income tax return's due date, whichever comes first. "While some court cases have been in favor of deposits made before filing a late or amended return, the best way to go is to stick to the original filing deadline. Gada explains, "If the money isn't used within three years of the original transfer, the remaining balance is taxed as long-term capital gain in the tax year that period ends." 

Raj Varma, 39, from Kolkata, sold his house in 2023 but couldn't instantly reinvest all of the money he made from the sale. He put the unused money into a CGAS account before filing his return to keep the exemption. He bought a new flat within two years, which kept the exemption in place. 

How to close a capital gains account

If you don't use the money in the capital gains account program within three years of the original capital gain, you can take it out of the account, but only with approval from the income tax department. Harish says, "You have to apply to the IT and explain that you sold a property and put the money into the capital gains account with the goal of buying or building a new house, but for whatever reason, you haven't done so." 

Tax consequences of selling within three years

According to Section 54 of the Income Tax Act of 1961, you can only get the advantage of the exemption if you hold the new residential property for at least three years. This basically acts as a lock-in phase to make sure that the reinvestment is not just for a short time. 

If the new property is sold or built within three years of its acquisition or construction, the previous exemption does not stay in place. The law says that the cost of buying the new property should be recalibrated instead. The amount of capital gains exemption claimed under Section 54 of the Income Tax Act, 1961, lowers the cost of the new asset. when you sell it, you'll have to pay more taxes on the capital gain. 

Source: Hindustan Times