Please remember that the property is regarded as a capital asset and any gains arising from its sale is taxable as 'Capital Gains' under the Income Tax Act 1961. If the property is held for less than three years prior to its sale, it is termed as a short-term capital asset and any gain arising from the sale is treated as a short-term capital gain. But if the property is sold after a holding period of more than three years, it is to be treated as a long-term capital asset and a gain arising from its sale is assessed as long-term capital gains.
While short-term capital gains on sale of property is taxable per slabs rates applicable to the individual, long-term capital gains are taxable at a flat rate of 20%. However, under Section 54 of the Act, the seller can claim exemption from capital gains arising out of sale of the house to the extent the capital gains are invested in another residential property subject to fulfilment of the following conditions:a) the new residential house is purchased either one year before or two years after the date of sale or constructed within three years from the date of sale and b) the new property purchased should not be transferred within three years of purchase.