Selling a property can be profitable. But you may owe tax on the profit — this is called capital gains tax. Many sellers focus on the sale price and forget this part.

Recently, an ITAT Bangalore ruling caught the eye of property owners and NRIs. The tribunal let an NRI seller add his home loan interest to the property’s cost, which lowered his taxable gain. So, a fair question follows: Is home loan interest tax-deductible when you sell a property?

The answer depends on your case. This simple guide explains how the tax is worked out, what the rate is, what the ruling means, and how homeowners, investors, and NRIs can legally save tax before selling.

What is the capital gains tax on a property sale?

It is the tax on the profit you make when you sell — not on the full sale price. For example, if you buy a property for ₹70 lakh and sell it for ₹1 crore, the tax looks at your ₹30 lakh profit (before deductions), not the whole ₹1 crore.

How much you pay depends mostly on one thing: how long you have owned the property.

How long you hold it decides the tax

This is the single most important factor.

• Held for 24 months or less → short-term gain → taxed at your normal income tax slab rate.
• Held for more than 24 months → long-term gain → taxed at a lower special rate, plus you can use money-saving exemptions.

Since 23 July 2024 (Budget 2024), long-term gains on property are taxed at 12.5%, without the old inflation adjustment (called indexation). A resident owner who bought before that date can pick whichever is cheaper — 12.5% without indexation, or 20% with it. An NRI seller pays the flat 12.5%.

One important note: the reinvestment exemptions explained later apply only to long-term gains.

How is the tax calculated?

Start with the sale price and subtract your eligible costs:

Capital Gain = Sale Price − Cost of Acquisition − Cost of Improvements − Selling Expenses

The cost of acquisition includes the purchase price, stamp duty, and registration charges. You can also deduct interiors, major improvements, brokerage, and legal fees.

A quick example: You bought a flat in 2015 for ₹40 lakh and sold it in 2025 for ₹1.2 crore — a profit of ₹80 lakh. The new way: 12.5% of ₹80 lakh = ₹10 lakh. The old way (open to you since you bought before July 2024): after adjusting your cost for inflation to, say, ₹87 lakh, the gain drops to ₹33 lakh, and 20% of that is about ₹6.6 lakh. Here, the old method saves more, so you would choose it. (Your CA can work out the exact inflation figure.)

One trap to watch: the circle rate

Every area has a government-set minimum value for property, called the circle rate. If you sell below it, the tax department can treat the circle rate as your sale price — so you could be taxed on more than you actually received. Always check the circle rate before you fix a price.

Can home loan interest reduce your tax?

This matters most to a homeowner, seller, or NRI who bought the property with a home loan.

The answer is: sometimes yes. If you already claimed the home loan interest as a deduction under Section 24(b), you cannot claim the same amount again while calculating your gain.

But if you never claimed that interest anywhere, you may be able to add it to the property’s cost. That lowers your taxable gain — and this is exactly what the recent ITAT Bangalore ruling allowed.

What happened in the ITAT Bangalore case?

An NRI sold a property in India and included the home loan interest he had paid over the years as part of the property’s cost.

The Income Tax Department rejected it, so he appealed to the Income Tax Appellate Tribunal (ITAT), Bangalore. Going by the reported details, the tribunal noted he had never claimed that interest under Section 24(b). Since there was no double benefit, the Tribunal (ITAT) allowed the interest to be treated as part of the cost, reducing his gain.

Case: Santanu Arun Nandi vs ITO (International Taxation), ITA No. 1640/BANG/2025, ITAT Bangalore, order dated 20 May 2026. Reported by Livemint.

But this does not apply to everyone. Other benches have refused similar claims — the Delhi ITAT, for one, held that loan interest is not closely enough linked to buying the property. So the outcome depends on your facts and documents.

Who can claim this benefit?

You may be able to add home loan interest to your cost if:

• You took a home loan to buy the property.
• You never claimed that interest under Section 24(b) or any other deduction.
• You have proper records of the interest paid.

This can help homeowners, investors, and NRIs — and it fits especially well for NRIs (who often do not claim the Section 24(b) deduction) and sellers under the new tax regime (which does not allow that deduction on a self-occupied home). If you already claimed the interest, this door is closed. Always check with a Chartered Accountant first.

How can you reduce the tax legally?

The Income Tax Act lets you cut the tax if you reinvest within the set time limits:

• Section 54: Put the gain from selling a residential house into another residential house.
• Section 54F: For investors who sell an asset other than a residential house (a plot, say) and invest the full sale amount into a residential house.
• Section 54EC: Invest up to ₹50 lakh in specified bonds (such as NHAI or REC) within six months of the sale.
• Capital Gains Account Scheme (CGAS): If you cannot reinvest before filing your return, park the money in a CGAS account to keep your exemption alive.

What should NRIs know before selling?

For an NRI seller, there is one extra step: TDS (tax deducted at source). Unlike with resident sellers, the buyer must deduct TDS under Section 195 before paying an NRI — usually on the full sale price, not just the profit.

If the actual tax is lower, the NRI can apply for a Lower Deduction Certificate under Section 197. This avoids excess deduction and frees up cash. NRIs can also use the same exemptions under Sections 54, 54F, and 54EC.

Key takeaways

• Tax is charged only on your profit, not the full sale price.
• Holding for more than 24 months gives a lower rate and access to exemptions.
• Long-term gains are taxed at 12.5% (a resident owner who bought before 23 July 2024 can instead pick 20% with indexation; an NRI pays the flat 12.5%).
• Keep records of your purchase cost, improvements, and brokerage.
• If you never claimed home loan interest under Section 24(b), you may be able to add it to your cost — depending on your case.
• NRIs should plan their TDS and Lower Deduction Certificate before the sale.

A little planning helps you stay compliant and save tax legally. Always consult a qualified Chartered Accountant for your own situation.

About Agarwal Estates

Selling a property is rarely just about finding a buyer. Getting the numbers right, from capital gains to TDS for NRI sellers to the documentation behind every deduction, is what decides how cleanly the sale closes and how much you keep after tax.

Agarwal Estates has handled exactly this since 2012. As an ISO 9001:2015-certified consultancy in Bangalore, we’ve guided 10,000+ families across 50+ countries, including homeowners, investors, and NRIs, through property sales, purchases, and management, backed by 4,000+ client testimonials. We also coordinate with the legal and tax professionals a clean transaction needs. If you’re planning to sell, we’ll take you through each step in a clear, organised process, from pricing to registration, so nothing gets missed.

Frequently asked questions

1. What is the capital gains tax on a property sale? 

It is the tax on the profit from selling a property. It is charged on the gain, not the full sale price.

2. What is the tax rate on long-term property gains? 

For sales on or after 23 July 2024, it is 12.5% (plus surcharge and cess). A resident owner who bought earlier can instead choose 20% with indexation if it works out cheaper.

3. Is home loan interest tax-deductible when selling a property? 

It may be that if you never claimed the interest under Section 24(b), you may be able to add it to your property’s cost — depending on your case.

4. Does the ITAT Bangalore ruling apply to everyone? 

No, it was based on one case’s facts, and some benches have refused similar claims. Whether you can use it depends on your circumstances and documents.

5. What should NRIs know before selling property in India? 

The buyer must deduct TDS under Section 195. NRIs may apply for a Lower Deduction Certificate under Section 197 to reduce excess TDS if eligible.

Disclaimer

This article is shared by Agarwal Estates to help you understand the topic. It is not tax or legal advice. Tax rules change and depend on your own situation. Agarwal Estates is a real estate consultancy, not a tax or legal advisor, so please talk to a qualified Chartered Accountant or tax professional before you act on anything here.