LTCG Tax on Real Estate in Kochi: Key Facts You Should Know

Posted onFeb 27, 2025

If you have bought or are about to buy property in Kochi, you are most likely aware of why real estate investment in Kochi is the best option among other cities in Kerala. However, there are several legalities you should be aware of, and one of them is the long-term capital gains tax.

What is Capital Gains Tax?

People invest money to make a profit at a later date; some profits or returns come quickly, while others are realized after a long time. This is called long-term capital returns or gains, and are made from the sale of capital assets like property, vehicles, costly equipment, collectables, and shares. The profits made from the sale proceeds of these assets are taxed. Knowing the facts about capital gains tax should be a priority of your real estate investment strategies in Kochi.

Long Term Capital Gain (LTCG) Tax

Any income earned by selling real estate held by the owner for over 24 months, is considered long-term capital gains tax. Profits up to 1.25 lakh rupees are exempted, and anything over this amount is taxed at the rate of 20%, and an additional cess and surcharge as applicable may also be levied.

Tax Rate for Sale of Property

Long-term capital gains tax on the sale of property is taxed at:

• 20% with indexation (If sold prior to 23rd July 2024)
• 12.5% without indexation (If sold on or after 23rd July 2024)

As long as you have purchased properties after 22 July 2024, you can choose either option for your tax liability.

Long-Term Capital Gain/Loss

• Any sale of property made on or prior to 22 July 2024 will be taxed at 20%, and will be adjusted for inflation through indexation.
• Sales from 23 July 2024 onwards will attract a tax of 12.5%, and no indexation benefit will be provided.
• In case of land and building acquired before 22 July 2024, and disposed of after 23 July 2024, the seller can choose to pay 20% tax with an indexation benefit, or a flat 12.5% tax without indexation.

As mentioned before, LTCG tax can also have a cess or surcharge added to it; the health and education cess is at 4% of the tax, so you end up paying a total of 20.8% tax on the profits made from the sale of a property.

What is Indexation?

It is a way of adjusting the cost of the asset according to the inflation asset; this increases your acquisition cost and reduces your profits, essentially, reducing your tax liability.

Let’s suppose your income puts you in the category of 30% income tax; however, you will not have to pay 30% tax on profits made from selling property, but just 20%.

LTCG calculation

Sale amount of property – (Indexed Cost of Acquisition + Indexed Cost of Improvement + Transfer Expenses)

You can further claim exemption under sections 54/54F/ 54EC, and arrive at the final taxable amount.

How to Save on LTCG Tax

• Use the whole amount to buy a new residential property within one year before you sell the property or two years after you sell it. You can also build a new house within three years of the ale.
• Invest the whole proceeds in bonds issued by Rural Electrification Corporation Limited (RECL) and the National Highways Authority of India (NHAI) within six months of the sale of the property; there is a limit of 50 lakhs per financial year.
• Invest the entire amount in a capital gains account scheme; you can withdraw money from this account to buy property; once withdrawn, you must use it within 3 years.

Conclusion

There are hundreds of reasons why you should consider real estate investment in Kochi. It is the most vibrant and cosmopolitan city in Kerala, and a thriving commercial and strategically located city.

Now that you have understood the tax implications of selling property, it is the right time to sell your old property and invest the money in a premium 2 or 3-BHK flat from Varma Homes. With world-class amenities and spacious layouts, our apartments in the best residential localities of Kochi are sure to amaze you. 

Step into the world of luxury with Varma Homes and discover the finest Luxury Flats in Kochi. Experience unparalleled elegance and modern amenities tailored to enhance your lifestyle. Visit us today to explore our exclusive properties and take the first step towards living in the lap of luxury. Don't wait—your dream home awaits at Varma Homes. Schedule your personal tour now and see why we are the leaders in luxury living.

FAQ’s

What is Long-Term Capital Gains (LTCG) Tax?

LTCG tax is imposed on the profit gained from the sale of a property that has been held for more than 24 months. The profit exceeding 1.25 lakh rupees is taxed at a rate of 20%, along with an additional cess and surcharge as applicable. Understanding LTCG is crucial for anyone involved in real estate investments in Kochi.

How does indexation affect LTCG tax calculations?

Indexation adjusts the cost of acquisition of the property to reflect inflation, effectively increasing your purchase cost and reducing the taxable profit. This adjustment allows you to reduce your tax liability on gains from property sales, making it a valuable tool in tax planning for property owners in Kochi.

What are some ways to save on LTCG Tax when selling property in Kochi?

To save on LTCG tax, you can reinvest the entire sale amount in a new residential property within a specified time frame, purchase bonds issued by certain government entities, or deposit the gains into a capital gains account scheme to be used later for property acquisition. Each method has specific rules and timelines that must be followed to qualify for the tax exemption.