Published 7 May 2026
Meet Meher Talwar, 48, a senior consultant at Vista Media in Mumbai. In September 2025 she sold a Bandra West apartment her late mother left her – held by Meher for 9.5 years. Sale price ₹2.6 crore. Original cost ₹80 lakh. Within six months of the sale she parked ₹50 lakh in NHAI 5-year capital-gains bonds to claim exemption under Section 54EC.
This article covers:
- Why ITR-2 (instead of ITR-1) is mandatory once any LTCG arises.
- The post-Finance-Act-2024 transitional choice for property LTCG – lower of 12.5% no-indexation OR 20% with-indexation – and how BharatTax picks the cheaper path automatically.
- Section 54EC reinvestment mechanics + the ₹50 lakh per-FY cap.
- The 1% TDS under Section 194-IA that Meher’s buyer was supposed to deduct + how it reflects in 26AS.
1. Why ITR-2
LTCG on a property sale rules out ITR-1, which allows capital gains only as long-term gains under Section 112A of up to ₹1.25 lakh (rule 12(1)(a)(iv) of the Income-tax Rules, 1962), and only where total income does not exceed ₹50 lakh. Even if the entire LTCG is exempted under Section 54 / 54EC / 54F, the gain itself must be reported – the exemption is computed on disclosed gain. So ITR-2 is mandatory.
2. Post-23-July-2024 LTCG on property – the transitional choice
Pre-Finance Act 2024: Long-term capital gain on land/building was taxed at 20% with indexation (CII-adjusted cost).
Post-Finance Act 2024 (sales from 23 July 2024 onwards): A transitional rule applies for property acquired BEFORE 23 July 2024:
Compute tax under BOTH methods:
- (a) 12.5% on gain without indexation
- (b) 20% on gain with indexation
Pay the LOWER of (a) and (b).
For property acquired ON OR AFTER 23 July 2024, indexation is no longer available – only 12.5% on actual gain.
The source is the second proviso to Section 112(1)(a), inserted by the Finance (No. 2) Act, 2024. It applies to a resident individual or HUF transferring land or building acquired before 23 July 2024: where tax at 12.5 per cent exceeds tax computed under the law as it stood before that Act (20 per cent with indexation), the excess is ignored.
BharatTax’s CG engine reads dateOfPurchase and dateOfSale,
computes both methods, and picks the cheaper for you. You don’t
need to make the choice manually.
3. Section 54EC – bonds reinvestment exemption
What it gives: Exempts LTCG from tax to the extent the gain is invested, within 6 months of the sale, in bonds of NHAI or REC or any other bond notified by the Central Government (Section 54EC(1) and Explanation (ba)), up to ₹50 lakh.
Eligibility:
- Source asset: land or building (NOT shares / debentures / movable property).
- Asset must be long-term (held > 24 months for property; was 36 months pre-Finance-Act-2017).
- Lock-in: 5 years from date of acquisition of the bond. Early exit triggers the exempted gain becoming taxable in the year of exit.
The ₹50 lakh cap:
- Investment in any one financial year cannot exceed ₹50 lakh, and investment out of the gains on one or more original assets, across the year of transfer and the next year together, cannot exceed ₹50 lakh (first and second provisos to Section 54EC(1)).
- If LTCG > ₹50 lakh, the excess is taxable.
For Meher: Bandra apartment sold in Sep 2025, ₹50 lakh deposited in NHAI bonds in Feb 2026 (within 6 months). Cap fully utilised in this FY.
4. Section 194-IA – the buyer’s 1% TDS
Where the consideration or the stamp duty value of a property is ₹50 lakh or more, the buyer deducts 1% TDS at source on the consideration or the stamp duty value, whichever is higher (Section 194-IA(1) and (2)), deposits it without needing a TAN (Section 194-IA(3)), and issues Form 16B to the seller. This appears in the seller’s 26AS under “TDS on Sale of Property”.
For Meher: the stamp duty value of ₹2,65,00,000 is higher than the sale price of ₹2,60,00,000, so the buyer deducts ₹2,65,000 (1%) → Meher receives Form 16B → enters as a TDS-2 row in BharatTax with the buyer’s TAN.
What Form 16B shows (the buyer’s TDS certificate)
Aditya Verma (buyer) deposits 1% of sale consideration as TDS via Form 26QB on incometax.gov.in. He then downloads Form 16B from TRACES and sends it to Meher.
Three things this certificate proves:
- TDS amount (₹2,65,000 = 1% of the ₹2.65 cr stamp duty value) – this is the credit Meher claims in Schedule TDS-2.
- Buyer’s PAN as TAN – Sec 194-IA uses buyer’s PAN, not a separate TAN (different from regular salary TDS where the employer needs a TAN). Schedule TDS-2 in BharatTax accepts “buyer PAN” as the TAN field.
- BSR + challan no + date – Meher cross-checks against her 26AS where this challan should appear under “TDS on Sale of Property”.
Common pitfall: the buyer forgets to file Form 26QB or files it late. The TDS appears in your 26AS with delay; if you’re rushing to file, your refund/balance-payable shows wrong because the credit isn’t reflected yet. Confirm Form 16B receipt + 26AS reflection before filing.
5. What you need
| Document | Why |
|---|---|
| Sale deed | Date of sale, full sale consideration. |
| Original purchase deed / will / inheritance certificate | Cost of acquisition + date of holding (for inherited assets, holding period includes prior owner’s). |
| Stamp duty assessment | Sec 50C: if stamp value > sale value, the higher of the two is the deemed sale consideration. |
| NHAI / REC bond receipt | Date of investment + amount, for 54EC documentation. |
| Form 16B (from buyer) | Sec 194-IA TDS credit. |
| Form 16 (from employer) | Salary breakup. |
| PAN, Aadhaar, bank | Standard. |
| Bank statement | For sale-proceeds traceability + bond purchase reconciliation. |
6. Step-by-step walkthrough
Step 1 – Sign in
Step 2 – Skip last-year import
Step 3 – Personal information
Step 4 – Questionnaire selects ITR-2
Tick Capital Gains in the income sources. BharatTax routes to ITR-2.
Step 5 – Salary
Standard. Meher: Vista Media, gross ₹17,10,000 (basic ₹10.8L + HRA ₹4.32L + special ₹1.98L), TDS ₹1,65,000, profession tax ₹2,500.
Step 6 – Capital Gains entry (the heavy step)
Click View on Capital Gains card → + Add Transaction:
- Asset Type: Land or Building – residential
- Description: Bandra West apartment – inherited
- Date of purchase: 18-Mar-2016
- Date of sale: 12-Sep-2025
- Full sale consideration: ₹2,60,00,000
- Stamp duty value of property at sale: ₹2,65,00,000
- Cost of acquisition: ₹80,00,000
- Expenses on transfer (broker, legal, society NOC): ₹1,50,000
Sec 50C rule. When the stamp duty value exceeds the sale price, the stamp duty value is the deemed full value of consideration – but only if it exceeds 110 per cent of the sale price (third proviso to Section 50C(1)). Meher’s stamp value of ₹2.65 cr is about 102 per cent of her ₹2.6 cr sale price, within the 110 per cent band, so the actual ₹2.6 cr remains the full value of consideration. To contest a higher stamp value, you can request DVO (Departmental Valuation Officer) valuation, but that’s a separate process.
-
Indexed cost of acquisition: ₹1,18,42,520
- Computed as
8000000 × (376/254)where 254 = CII for FY 2015-16 (when she inherited – the first year she held the asset, Section 48 Explanation (iii); cost basis carries forward from previous owner) and 376 = CII for FY 2025-26 (CBDT Notification No. 70/2025, 1 July 2025).
- Computed as
-
Buyer name: Aditya Verma, buyer PAN: BCDPV9876A
-
Sec 54EC exemption claimed: ₹50,00,000
BharatTax now computes both:
- (a) No indexation: Gain = 2,60,00,000 − 80,00,000 − 1,50,000 = ₹1,78,50,000. Less ₹50L 54EC → ₹1,28,50,000. Tax @ 12.5% = ₹16,06,250.
- (b) With indexation: Gain = 2,60,00,000 − 1,18,42,520 − 1,50,000 = ₹1,40,07,480. Less ₹50L 54EC → ₹90,07,480. Tax @ 20% = ₹18,01,496.
Lower of the two: ₹16,06,250. BharatTax picks the no-indexation method.
Step 7 – TDS-2 entry for Sec 194-IA
Open the TDS schedule (top-right “Tax Paid” card or the dedicated TDS-2 section). Add:
- Buyer TAN: (from Form 16B)
- Section: 194-IA
- Gross consideration: ₹2,60,00,000
- TDS deducted: ₹2,65,000
Why this matters. Without the 194-IA TDS, Meher would appear to owe about ₹19.1 lakh (new regime) after ₹1.65 lakh of salary TDS. The 194-IA credit reduces that by ₹2.65 lakh.
Step 8 – 80C, 80D
- 80C PPF: ₹1,50,000
- 80D Self: ₹30,000 paid, allowed up to the ₹25,000 limit for a non-senior individual; Parents (senior): ₹35,000 → 80D total ₹60,000
- 80TTA: ₹6,800 savings interest (old regime only)
Step 9 – Schedule TI / TTI
| Line | New regime | Old regime |
|---|---|---|
| Salary (after Sec 16) | ₹16,35,000 | ₹16,57,500 |
| OS (savings interest) | ₹6,800 | ₹6,800 |
| LTCG (after 54EC, special-rate) | ₹1,28,50,000 | ₹1,28,50,000 |
| Gross Total Income | ₹1,44,91,800 | ₹1,45,14,300 |
| Less: Chapter VI-A | – | ₹2,16,800 |
| Total Income (Sec 288A) | ₹1,44,91,800 | ₹1,42,97,500 |
Step 10 – Compute and compare
| New regime | Old regime | |
|---|---|---|
| Tax at slab on ₹16,41,800 (new) / ₹14,47,500 (old) | ₹1,28,360 | ₹2,46,750 |
| 87A rebate | ₹0 (TI > ₹12L) | ₹0 (TI > ₹5L) |
| Slab tax | ₹1,28,360 | ₹2,46,750 |
| Surcharge @ 15% (TI ₹1Cr-₹2Cr) | applied to total tax | applied to total tax |
| LTCG @ 12.5% on ₹1,28,50,000 | ₹16,06,250 | ₹16,06,250 |
| Tax pre-surcharge-and-cess | ₹17,34,610 | ₹18,53,000 |
| Surcharge 15% | ₹2,60,192 | ₹2,77,950 |
| Cess 4% | ₹79,792 | ₹85,238 |
| Total tax | ₹20,74,594 | ₹22,16,188 |
| Less: TDS on salary | ₹1,65,000 | ₹1,65,000 |
| Less: TDS on property u/s 194-IA | ₹2,65,000 | ₹2,65,000 |
| Balance payable | ₹16,44,594 | ₹17,86,188 |
Surcharge cap on LTCG. Since 2022, surcharge on LTCG / dividend income is capped at 15% even for high-income filers (first proviso under “Surcharge on income-tax”, Paragraph A, Part I of the First Schedule to the Finance Act). Without the cap, Meher’s surcharge on the LTCG portion would be 15% (in her ₹1-2 cr bracket). Same here – cap is not biting. But it matters for filers in the >₹2 cr bracket.
Why the regime gap is modest here. With most of her income from special-rate LTCG (which is regime-agnostic), the regime choice only affects the ₹14-17 lakh slab portion. There, the new regime is about ₹1.42 lakh cheaper (₹20,74,594 against ₹22,16,188). For property-sale years, the regime choice is less consequential than for pure-salary years.
Step 11 – SAT challan + JSON
Balance payable ~₹16.4 lakh – Meher pays a self-assessment-tax (SAT) challan online at incometax.gov.in BEFORE submitting JSON. Then she adds the SAT challan details in the Tax Paid schedule (challan number, BSR code, date, amount) so total tax-paid lines up with total liability.
234A/B/C interest. Big LTCG without quarterly advance tax payments triggers 234B (1%/month on unpaid tax from 1 April of AY) and 234C (interest on shortfall vs each quarter’s threshold). Meher should ideally have paid an advance tax instalment by 15 December 2025 (post-sale). BharatTax computes 234A/B/C automatically once SAT date is entered.
Confirm regime, download JSON, upload to incometax.gov.in.
7. Common mistakes for property-sale filers
- Forgetting Sec 50C deemed consideration. If the stamp value exceeds 110 per cent of the sale price, the stamp value is the deemed sale value; within that band the sale price stands (third proviso to Section 50C(1)). BharatTax handles this when both fields are entered; manual entry of “sale only” skips the comparison.
- Missing 194-IA TDS credit. The buyer deducts 1% TDS where the consideration or stamp duty value is ₹50 lakh or more. Many sellers forget to enter this in Schedule TDS-2 → balance-payable shows ₹2.65 lakh too high.
- Picking the wrong indexation method. Don’t manually choose – BharatTax computes both transitional methods and picks the cheaper. If you over-ride, you may pay more tax than required.
- Investing in 54EC bonds AFTER 6 months. Sec 54EC requires investment within 6 months after the date of transfer (Section 54EC(1)); the period is counted in months, not 180 days.
- Exceeding the ₹50 lakh 54EC cap. The cap applies per FY, and also across the year of transfer and the next year for gains from one or more original assets. Even with multiple property sales in one year, total 54EC investment is capped at ₹50 lakh.
- Choosing 54EC vs 54F vs 54 incorrectly. Section 54 (sale of residential house, reinvest in another residential house), Section 54F (sale of any LTCA other than residential house, reinvest in residential house), Section 54EC (gain on land or building, reinvest in bonds). They have different conditions and are not interchangeable. Pick the right one.
- Missing the 5-year bond lock-in. Selling NHAI bonds, or taking a loan against them, within 5 years triggers reversal – the previously exempted gain becomes taxable in the year of bond exit (Section 54EC(2) and its proviso and Explanation).
- Inherited property – wrong holding period. When you inherit property, Section 2(42A) (Explanation 1) counts the prior owner’s holding period in yours, and Section 49(1) carries the cost to the previous owner forward (going back through the chain of inheritance to the last owner who bought it). Get the original purchase deed.
- Not paying SAT before filing. Section 140A(1) requires self-assessment tax, interest and fee to be paid before the return is furnished. If it is not paid, Section 140A(3) treats the filer as an assessee in default.
- Underreporting 234A/B/C interest. Late SAT payment + no-advance-tax = significant interest. BharatTax computes; don’t manually zero it out.
8. FAQs
Q: I sold the property in March 2026. Does the 6-month 54EC window straddle two FYs? A: Yes. The 6-month investment window can run from one FY to the next, but the exemption is claimed in the year of sale (FY 2025-26 in your case). If you invest in April-September 2026, the exemption still applies to your AY 2026-27 return – but the bond is held in FY 2026-27 onwards.
Q: I co-own the property with my spouse 50/50. How is the LTCG split? A: Each co-owner reports their share of the gain (and 54EC investment) separately on their own return. Meher would enter 50% of sale and 50% of cost. The buyer should also have deducted 194-IA TDS proportionally in each co-owner’s name.
Q: I sold the property in Sep 2025 and bought a new house in April 2026. Can I use Sec 54 (instead of 54EC)? A: Yes – Section 54 (residential-to-residential) allows reinvestment up to 1 year before sale OR 2 years after sale (up to 3 years if you build new). You may even claim BOTH 54 and 54EC if the gain exceeds your reinvestment in the new house, with 54EC covering the excess (subject to ₹50L cap).
Q: What if I deposit in NHAI bonds at ₹40 lakh + REC bonds at ₹20 lakh in one FY? A: Aggregate cap is ₹50 lakh per FY across all 54EC bonds. So you get exemption on ₹50L only – the ₹10L excess investment is just a ₹10L bond, no extra exemption.
Q: My LTCG is ₹40 lakh – can I claim 54EC on the full ₹40L? A: Yes. The ₹50L cap is the maximum; if your LTCG is below ₹50L, the cap doesn’t bite. You can claim 54EC equal to your LTCG. Reinvest the full LTCG amount in NHAI/REC bonds within 6 months.
Q: I sold the property to my brother. Does that affect anything? A: Sale to a related party isn’t disqualifying for LTCG treatment, but it does invite scrutiny on the sale price. Sec 50C applies as usual (stamp value compared to sale price). Buyer also must deduct 194-IA TDS regardless of relationship.
Q: Did I really need ITR-2? Most of my gain was exempt. A: Yes. Any capital gain other than a Section 112A long-term gain of up to ₹1.25 lakh – exempted or not – rules out ITR-1 (rule 12(1)(a)(iv)), and Meher’s total income is above ₹50 lakh in any case. ITR-2 is the next form up. ITR-3 / ITR-4 are escalations from ITR-2 (for business income); you don’t go down to ITR-1 once any CG is reported.