Capital Gains on Immovable Property Under ITA 2025: 12.5% LTCG, Section 54 and TDS

Selling a residential house, land, or commercial property triggers capital gains tax under the Income Tax Act 2025. Major changes: indexation is abolished for property sold after 23 July 2024, and LTCG is now a flat 12.5% rate for all property held over 24 months.

Short-Term vs Long-Term for Property

Property held for more than 24 months is long-term. Held 24 months or less is short-term. Short-term gains are added to income and taxed at slab rates.

LTCG on Property: 12.5% Without Indexation

For property sold in Tax Year 2026-27 and beyond, LTCG is taxed at 12.5% flat — no Cost Inflation Index (CII) adjustment. Example: House bought for Rs. 30 lakh in 2018, sold for Rs. 1 crore in 2026. LTCG = Rs. 70 lakh. Tax = Rs. 8.75 lakh + cess.

Section 54 — Reinvestment in Residential House

• LTCG on sale of residential house exempt if reinvested in another residential house
• Purchase: within 1 year before or 2 years after sale
• Construction: within 3 years after sale
• Maximum: 1 new house (for LTCG up to Rs. 2 crore, 2 houses allowed as one-time option)
• Available to individuals and HUFs only

Section 54F — Any Long-Term Asset (Non-Property)

If you sell non-residential assets (gold, unlisted shares), LTCG is exempt proportionately if entire net sale consideration (not just gains) is invested in a residential house. One house rule applies. Not available if you already own 2+ houses at time of transfer.

Section 54EC — Bond Investment

LTCG from sale of land or building exempt up to Rs. 50 lakh if invested in NHAI/REC bonds within 6 months. Lock-in: 5 years. Both 54 and 54EC can be combined if LTCG exceeds Rs. 50 lakh.

TDS on Property Purchase — Section 194IA

Buyer must deduct 1% TDS on purchase of immovable property valued above Rs. 50 lakh. This is deposited via Form 26QB. Sellers credit this TDS in their ITR. Non-deduction by buyer = interest + penalty.

CGAS — Capital Gains Account Scheme

If the reinvestment property is not identified before the ITR due date (31 July), the LTCG must be deposited in a CGAS bank account (Type A or Type B). The deposit must be utilised within the Section 54 time limit or it becomes taxable.

Joint Property and Inherited Property

For jointly owned property, each owner's share of capital gain is computed proportionately and reported in their individual ITR. For inherited property, the original cost and holding period of the previous owner is adopted.