September 15, 2025

Big news for property sellers! TaxBuddy.com and Chartered Accountant Dr. Suresh Surana have uncovered a tricky new rule about income tax on property sales. What’s the scoop? Even if you don’t make any long-term capital gains (LTCG) when selling your property, you might still have to pay extra tax called surcharge. TaxBuddy.com posted on X (formerly Twitter) on August 22, 2025, “Ramesh ended up paying an additional Rs 61,630 in taxes. Even when he had Rs 0 gains from selling his property. Here's how surcharge at 10%* is applicable on sale of properties..” Dr. Surana explained the law changes. The Finance (No. 2) Act, 2024 shook up how LTCG on property sales works. From July 23, 2024, indexation (which adjusts for inflation) is gone. That means your capital gain is just the sale price minus original cost — no inflation help! But there’s a silver lining for some: if you bought the land or building before July 23, 2024, you get a 'grandfathering relief'. This means you pay tax based on whichever is lower — the old 20% rate with indexation or the new 12.5% without. Sounds fair, right? But wait, there’s a twist. The catch? This relief only lowers the tax bill, not your total income calculation. The full capital gain (without indexation) is still counted as income. And guess what? Surcharge depends on your total income. If your total income looks bigger because of this gain, you can get pushed into a higher surcharge bracket, even if the tax on the gain itself is low or zero. Let’s look at a juicy case study from TaxBuddy: - Ramesh bought a house for Rs 1.3 crore on January 1, 2014. - He sold it for Rs 2 crore. - He also earned Rs 30 lakh from salary and bank interest. Under old rules (before July 23, 2024), due to indexation, his capital gains were actually negative (a loss), so no LTCG tax. New rules after July 23, 2024, don’t allow indexation, so his capital gain shows Rs 70 lakh! Even though the tax he actually pays on this is zero (because the new 12.5% is still less than the old 20% with indexation), the full Rs 70 lakh counts toward his total income. This pushed his total income from Rs 30 lakh to Rs 1 crore. What happens next? Because his income crossed the Rs 50 lakh threshold, he was hit with a 10% surcharge on his tax plus a health and education cess. That’s an extra Rs 61,360 in tax, despite zero capital gains tax on the property sale! Dr. Surana warns, "Same house. Same buyer. Same price. Only the transfer date changes your surcharge band." He also adds, "The ignored amount reduces tax, not income—so surcharge applies." Plus, there’s bad news about losses. If you had losses before, you can’t carry forward or use them for set-off after July 23, 2024. To sum it up: The new tax law may surprise property sellers with extra surcharge bills even if their actual capital gain tax is zero. So, when selling your property, remember, the date matters a lot! Keep an eye on your total income and surcharge rules to avoid shocks. For everyone with property dreams, these changes are a spicy reminder—new rules can pinch your pocket in unexpected ways!

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Tags: Income tax, Long term capital gains, Property sale, Surcharge, Taxbuddy, Dr. suresh surana,