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Complete Tax Guide for Resident Indians Selling Land in India

Posted on 23 Oct 2024
Author: Sayan Sircar

Tags: Tax ; Real Estate

5 mins read
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This article simplifies the process of selling land in India offering clear insights on how to manage TDS deductions, understand the differences between urban and rural agricultural land, and calculate capital gains tax.

Complete Tax Guide for Resident Indians Selling Land in India

📚 Topics covered:

What are the important tax considerations when a resident Indian sells land in India?
What is the TDS when resident Indians sell land in India?
What is the Capital Gains Tax when resident Indians sell land in India?
How to calculate tax on capital gains on land sales?
How to pay the lowest tax on capital gains on land sales?

What are the important tax considerations when a resident Indian sells land in India?

There are two main considerations while selling land from a taxation perspective:

Tax Deducted at Source (TDS)
Capital Gains Tax

If you are an NRI selling land in India, see this article instead: Complete Tax Guide for NRIs Selling Land in India.

What is the TDS when resident Indians sell land in India?

Tax Deducted at Source (TDS) is the income tax deducted before the income is given to you

TDS is not applicable on rural agricultural land or if the deal value is below ₹50 lakhs. All other deals will have 1% TDS.

Some land deals by resident India sellers fall under the TDS rules as per Section 194 of the Income Tax Act:

The buyer pays TDS to the income tax department and the rest of the sale amount to the seller
The TDS is adjusted against capital gains and tax on other income once the seller files their income tax return
The buyer will deposit the TDS and give the seller Form 16A from the income tax website.
TDS is not capital gains tax. That gets calculated separately.

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What is the Capital Gains Tax when resident Indians sell land in India?

Capital Gains Tax when resident Indians sell land in India depends on whether:

the land is Agricultural Land or not
if it is an Agricultural Land, what kind of Agricultural Land it is: urban or rural

Urban agricultural land is situated close to a small population centre (shortest aerial distance and population as per the last census) as per the table below:

Distance	Population
Less than 2 KM	More than 10,000
More than 2 KM but Less than 6 KM	More than 1,00,000
More than 6 KM but Less than 8 KM	More than 10,00,000

Any agricultural land which is not Urban agricultural land is classified as Rural agricultural land which is not a capital asset and therefore tax-free when sold.

Land records maintained by the municipality or equivalent body will give you the data for this distinction.

Once you know the type of land, the table below tells you what is the taxation applicable:

Type	Urban Agri	Rural Agri	Non Agri
Capital Asset	Yes	No	Yes
LTCG Rate	12.5%	No tax	12.5%
STCG Rate	At Slab	No tax	At Slab

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How to calculate tax on capital gains on land sales?

Capital gains tax on land sales is calculated as per the holding period:

Short-term capital gains tax (STCG) is calculated at slab rates when the land is sold within 24 months of purchase
Long-term capital gains tax (LTCG) is calculated at special rates (see below) when the land is sold after 24 months of purchase

Short-term capital gains tax is 30% + cess for when sold within two years.

Long-term capital gains tax is 12.5% + cess for when sold after two years without indexation.

Union Budget 2024 revised the long-term capital gains tax rules for land:

If you purchased the land after 1st April 2001, then the tax is 12.5% on profit without indexation: Budget 2024: A Surprise in Real Estate Sales due to Indexation Benefit Removal: Is it good or bad?
If you purchased the land before 1st April 2001, then indexation may be applied: Budget 2024: Will indexation benefit apply to property purchased before 2001?

How to pay the lowest tax on capital gains on land sales?

Section 54 of the income tax allows tax to be saved if:

you have purchased another house either a year before or two years after selling this land and do not sell it for three years
you invest a part of the sale proceeds (up to ₹50 lakhs) in eligible Sec54EC bonds for five years

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