Capital Gains Tax on Sale of Property in India 2026

Indian property sellers face Property Capital Gains Tax at slab rates when land or buildings are held for 24 months or less, while longer holdings attract 12.5% tax without indexation. Resident individuals and HUFs selling property acquired before 23 July 2024 can use the lower of this tax and the old 20% indexed calculation.

Sell a property you have held for more than 24 months and the gain is long term. The rate is 12.5% without indexation. If you are a resident individual or HUF and you bought the property before 23 July 2024, you also get the old 20%-with-indexation computation, and you pay whichever produces the lower tax.

That last sentence is where most explanations go wrong, and the error costs money. Read on for why it is not the “choice” it is usually described as.

Short term or long term: the 24-month line

For land and buildings, the holding period test is 24 months.

• Held 24 months or less: short-term capital gain. Added to your total income and taxed at your slab rate. If you are in the 30% bracket, the gain is taxed at 30%.
• Held more than 24 months: long-term capital gain, taxed under Section 112.

Count from the date of acquisition to the date of transfer. For an under-construction flat, the date that matters is generally the date of allotment rather than possession, though this has been litigated and depends on your documentation. If your sale is close to the 24-month boundary, the difference between slab rate and 12.5% is large enough that it is worth timing the transfer deliberately.

The 23 July 2024 split, explained properly

The Finance (No. 2) Act, 2024 removed indexation for property and cut the long-term rate from 20% to 12.5%. After protest, a grandfathering provision was added as a second proviso to Section 112(1)(a).

Here is what it actually says, and it is not what most articles claim.

If the property is land or a building, was acquired before 23 July 2024, is sold on or after that date, and the seller is a resident individual or HUF, then tax must be computed both ways:

1. Post-amendment: 12.5% on the gain, no indexation.
2. Pre-amendment: 20% on the indexed gain.

If the tax under method 1 exceeds the tax under method 2, the excess is ignored.

The distinction matters. You are not electing a regime, and you cannot pick the higher one by mistake and be stuck with it. The law caps your liability at the lower of the two figures. In practice your return software should compute both, but if you are checking a computation by hand, work out both numbers and take the smaller.

Who does not get this

The second proviso is available only to resident individuals and HUFs. If the seller is a non-resident, a company, an LLP or a firm, there is no indexation option at all. It is a flat 12.5% without indexation.

This catches NRIs selling ancestral property especially hard, because a long-held property with a low 1990s cost base is exactly the case where indexation used to help most. NRI sellers also face TDS on the sale consideration rather than on the gain, which is a separate cash-flow problem worth planning for.

It is also limited to land and buildings. It does not extend to unlisted shares, gold or other long-term assets, which moved to 12.5% without indexation with no grandfathering.

Working out the gain

Start with the sale consideration, then subtract three things.

Cost of acquisition. What you paid for it. Under the indexation method, this is multiplied by the Cost Inflation Index for the year of sale and divided by the CII for the year of purchase. Under the 12.5% method, you use the raw purchase price with no adjustment.

Cost of improvement. Capital expenditure that added to the property: an additional floor, a structural extension, a major renovation. Routine repainting and repairs do not qualify. Keep the invoices. This is the head assessing officers question most often, and an undocumented improvement claim is the one most likely to be disallowed.

Transfer expenses. Brokerage, legal fees, stamp duty you bore on the sale, and similar costs directly connected to the transfer.

For property acquired before 1 April 2001, you may substitute the fair market value as on 1 April 2001 for the actual cost, capped at the stamp duty value on that date. For genuinely old family property this usually produces a far better result than the original 1970s cost, and it is frequently missed.

One thing that silently increases your gain

Under Section 50C, if you sell below the stamp duty value, the stamp duty value is deemed to be your sale consideration for computing capital gains. There is a safe harbour where the stamp value does not exceed 110% of the actual consideration, but beyond that, you are taxed on money you never received.

If the circle rate in your area is genuinely above market, you can ask the assessing officer to refer the matter to a Valuation Officer. Do not simply declare the lower figure and hope.

How to reduce or eliminate the tax

Three exemptions do most of the work. They are not alternatives to each other in every case, and the conditions differ in ways that matter.

Section 54: sell a house, buy a house

Available when you sell a residential house that was a long-term asset and reinvest the capital gain in another residential house in India.

• Buy one year before or two years after the sale, or construct within three years.
• Only the gain needs reinvesting, not the whole sale price.
• Where the gain does not exceed ₹2 crore, you may invest in two houses instead of one. This is a once-in-a-lifetime option.
• The cost of the new house counted for exemption is capped at ₹10 crore.
• If you sell the new house within three years, the exemption is withdrawn and comes back as a gain in that later year.

Section 54F: sell something else, buy a house

Available when you sell any long-term asset other than a residential house, such as land, gold or shares, and buy a residential house.

The critical difference from Section 54: you must reinvest the entire net sale consideration, not just the gain. Reinvest part of it and the exemption is proportionate.

You also must not own more than one residential house, other than the new one, on the date of transfer. The ₹10 crore cap applies here too.

Section 54EC: capital gains bonds

Invest the gain from land or building in bonds issued by REC, PFC or IRFC.

• Invest within six months of the transfer.
• Maximum ₹50 lakh, and that ceiling applies across the year of sale and the following year combined, so you cannot split a sale across two financial years to invest ₹1 crore.
• Five-year lock-in. Redeem early and the exemption is withdrawn.
• The interest is taxable at your slab rate.

This is the option for someone who does not want to buy more property. The return is modest, so treat it as tax saved rather than an investment.

If you have not decided by the filing deadline

The reinvestment windows run longer than the ITR deadline. If you intend to buy but have not yet, deposit the amount in a Capital Gains Account Scheme account with a bank before the due date for filing your return, and claim the exemption on that basis.

Miss this step and the exemption is lost even if you buy the house later. It is a common and entirely avoidable error.

A worked example

A resident individual bought a flat in Pune in 2012 for ₹40 lakh and sells it in 2026 for ₹1.4 crore. Brokerage was ₹2 lakh. The property was acquired before 23 July 2024, so both computations apply.

Method 1, 12.5% without indexation:
Gain = ₹1,40,00,000 minus ₹40,00,000 minus ₹2,00,000 = ₹98,00,000
Tax at 12.5% = ₹12,25,000

Method 2, 20% with indexation:
The 2012 cost is indexed using the CII for the year of purchase and the year of sale, which raises it materially. Suppose indexation lifts the ₹40 lakh cost to roughly ₹87 lakh.
Indexed gain = ₹1,40,00,000 minus ₹87,00,000 minus ₹2,00,000 = ₹51,00,000
Tax at 20% = ₹10,20,000

Method 2 is lower, so the liability is ₹10,20,000, plus cess and any surcharge.

The shape of the result is the general rule: the longer you held the property and the lower the price appreciation relative to inflation, the more indexation helps. For a property bought recently that has risen sharply, the flat 12.5% usually wins. Use the actual CII figures notified for the relevant years rather than the illustrative number above.

Common questions

Can I use Section 54 and Section 54EC together?
Yes. If your gain exceeds what you reinvest in a house, the balance can go into 54EC bonds within the ₹50 lakh cap.

Does a home loan repayment count as reinvestment?
Repaying the loan on the property you sold does not. Using the proceeds to buy the new house does, whether funded by cash or loan.

What if I sell at a loss?
A long-term capital loss can be set off against long-term capital gains and carried forward for eight assessment years, provided you file your return by the due date. File late and you lose the carry-forward.

Is agricultural land taxed the same way?
Rural agricultural land meeting the statutory tests is not a capital asset at all, so no capital gains arise. Urban agricultural land is taxable, with a separate exemption available under Section 54B.

Do I pay tax on inherited property when I inherit it?
No. Inheritance is not a transfer. Tax arises when you sell, and you inherit the previous owner’s cost and holding period, which usually makes the gain long term immediately.

The short version

More than 24 months means long term at 12.5%. If you are resident, individual or HUF, and bought before 23 July 2024, compute the 20%-with-indexation figure too and pay the lower. Section 54 needs only the gain reinvested, Section 54F needs the whole sale price, and 54EC caps at ₹50 lakh with a five-year lock. If you have not reinvested by your filing date, park the money in a Capital Gains Account Scheme account first.

This is general information, not advice on your specific transaction. Property sales turn on documentation and dates, so have a chartered accountant review the computation before you file.