Income Tax on Property Sale — 12.5% or 20%?

The default rate is 12.5% without indexation (from 23 July 2024). The 20%-with-indexation method survives only as an option for resident individuals and HUFs on property acquired before 23 July 2024 — and only if it produces a lower tax. NRIs, companies, LLPs and firms get only the 12.5% no-indexation rate.

More than 24 months. Immovable property (land and buildings) held for over 24 months qualifies as a long-term capital asset. Sold on or before 24 months, the gain is short-term and taxed at your slab rate with no 12.5%/20% concession and no indexation.

STCG on property (held 24 months or less) has no special rate. The whole gain is added to your total income and taxed at the applicable slab rate. Under the new default regime for AY 2026-27, slabs run from nil up to ₹4 lakh to 30% above ₹24 lakh, with a Section 87A rebate making tax nil up to ₹12 lakh of total taxable income.

Indexed cost = actual cost × (CII of the year of sale ÷ CII of the year of purchase); base year 2001-02 = 100. For example, ₹30 lakh bought in FY 2010-11 (CII 167) and sold in FY 2025-26 (CII 363) has an indexed cost of about ₹65.21 lakh. The gain is sale value minus indexed cost, taxed at 20%. Compare it against 12.5% on the un-indexed gain and pay the lower.

From the sale consideration you can deduct the cost of acquisition, the cost of any improvement (renovation, additions), and transfer expenses such as brokerage, legal fees and stamp duty on sale. Where indexation applies, cost and improvement are indexed by the CII before being subtracted.

For inherited or gifted property, the cost and the date of acquisition of the previous owner are used to decide holding period and gain. If the previous owner acquired it before 1 April 2001, you may substitute the fair market value as on 1 April 2001 as the cost. The holding periods of the previous owner and yourself are added together.

Section 54 exempts LTCG on a residential house if you reinvest the gain in another residential house — purchased within 1 year before or 2 years after the sale, or constructed within 3 years. You may buy up to two houses once in a lifetime if the LTCG does not exceed ₹2 crore. The exemption is capped at a ₹10 crore cost of the new house. Selling the new house within 3 years reverses the benefit.

Section 54EC exempts LTCG on land or buildings if you invest the gain in specified capital-gains bonds — now issued by REC, PFC and IRFC (NHAI has stopped issuing them) — within 6 months of the sale. The maximum investment is ₹50 lakh in a financial year, with a 5-year lock-in. It can be combined with Section 54.

Section 54 applies when you sell a residential house and buy another house — only the capital gain must be reinvested. Section 54F applies when you sell any other long-term asset (plot, gold, shares) and buy one residential house — here the whole net sale consideration must be reinvested for full exemption, and you must not own more than one other house. Both carry a ₹10 crore cost cap.

Yes. If you have not reinvested the gain by the ITR due date, deposit the unutilised amount in a Capital Gains Account Scheme (CGAS) with a bank before filing. This preserves the Section 54/54F exemption, and you then use the deposited funds to buy or construct the house within the allowed window.

From a resident seller, the buyer deducts 1% TDS under Section 194-IA if the consideration or stamp-duty value is ₹50 lakh or more, deposited via Form 26QB within 30 days (no TAN required). From 1 October 2024, with multiple buyers or sellers the ₹50 lakh threshold is tested on the total consideration. From an NRI seller, TDS is deducted under Section 195 at the applicable capital-gains rate.

An NRI's LTCG on property held over 24 months is taxed at 12.5% (no indexation), plus surcharge and 4% cess; STCG is taxed at slab rates. The buyer must deduct TDS under Section 195 on the gain. To avoid TDS on the gross value, the NRI can apply for a lower or nil deduction certificate (Form 13). Filing an ITR lets the NRI claim any excess TDS as a refund.

Capital gains from property are reported in ITR-2 (for individuals/HUF without business income) or ITR-3 (if you also have business or professional income). ITR-1 and ITR-4 cannot be used when you have capital gains. Report the sale, indexed cost, exemptions claimed and the TDS credited from your AIS / Form 26AS.

Rural agricultural land is not a capital asset, so its sale is fully exempt from capital gains tax. Urban agricultural land (within the notified municipal limits/distances) is a capital asset — LTCG is taxed at 12.5% or 20% with indexation (for eligible pre-23 Jul 2024 buys), with a Section 54B exemption available if you reinvest in another agricultural land within 2 years.

No tax arises on a loss, but you should still report it. A long-term capital loss on property can be set off only against other long-term capital gains; a short-term loss can be set off against both short- and long-term gains. Unabsorbed capital losses can be carried forward for up to 8 assessment years, provided you file your return by the due date.