You can save tax only if the full amount is invested in purchasing or constructing a new property.
The tax on sale of property comes from the Capital Gains. It is capital gains tax. Capital gains is the gain or difference of amount or the extra income over the cost we paid for buying that comes to us on selling the property.
If the property is held for long time( more than 3 years) before disposing then it is Long term capital gain. It is taxed under capital gains tax. For less than three years, it is short term capital gain. ,STCG. STCG amount has to be treated as that years income and taxed accordingly.
But it is not a straight calculation of Selling price minus buying price. There is a benefit of inflation indexation. That is related to inflation factor. Suppose the property is bought in 1990 for Rupees one lakh. The sales is in 2016. Then using the standard index available, it is calculated what is the equivalent value of One lakh of 1990 in 2016. This is the capital for calculating the gain. The amount of selling price over this indexed capital is the Capital gain. The tax is to be paid on that.
However there are exemptions available. One is when the whole proceeds is invested on another residential property immediately.
However if that is not immediately possible then the LTCG amount can be kept in Capital Gains account with designated banks also till further investment in property. That has to be used for investment on new property within specified time.
Investing the LTCG amount in certain specified Capital Gains Bonds within six months of the sale, gives you tax relief.
However one should not resort to any illegal tricks to avoid tax, as that can lead to trouble at a later date. It is better to take help of an established professional tax consultant when the amount involved is high, or one does not have the knowledge and expertise in these matters.