Income Tax on Property Sale —
12.5% or 20%?
How capital gains on a house, plot or flat are taxed in India — the LTCG choice between 12.5% and 20% with indexation, STCG slab rates, Section 54 / 54EC / 54F exemptions, and the buyer's 1% TDS.
Profit on sale of property is taxed as capital gains. Held for more than 24 months it is Long-Term (LTCG), taxed at 12.5% without indexation — or, for property acquired before 23 July 2024, a resident individual/HUF may instead choose 20% with indexation and pay the lower. Held for 24 months or less it is Short-Term (STCG), added to income and taxed at slab rates. You can save LTCG under Section 54 (buy another house) or Section 54EC (₹50L in bonds).
Tax on Property Sale — Rate Table
Every common property-sale scenario for FY 2025-26 (AY 2026-27), with the applicable rate and the exemptions you can claim.
| Scenario | Holding | Rate | Exemptions |
|---|---|---|---|
| House / flat / plot — short-term | ≤ 24 months | Slab rates | None |
| House / flat / plot — long-term (acquired on/after 23 Jul 2024) | > 24 months | 12.5% | 54, 54EC, 54F |
| House / flat / plot — long-term (acquired before 23 Jul 2024) | > 24 months | 12.5% or 20% | 54, 54EC, 54F |
| NRI seller — long-term | > 24 months | 12.5% | 54, 54EC, 54F |
| Rural agricultural land | — | Exempt | Not a capital asset |
| Urban agricultural land — long-term | > 24 months | 12.5% / 20% | 54B |
Indexation (20% option) is available only to resident individuals/HUF on property acquired before 23 July 2024. Add surcharge (capped 15% on such capital gains) + 4% cess. Verify on incometax.gov.in before filing.
12.5% Without Indexation vs 20% With Indexation
Budget 2024 (effective 23 July 2024) changed LTCG on property from 20% with indexation to 12.5% without indexation. To protect existing owners, a grandfathering rule lets a resident individual or HUF who acquired the property before 23 July 2024 compute tax both ways and pay the lower amount.
New default — no indexation
- Applies to all sellers on new (post-23 Jul 2024) buys
- Flat 12.5% on the full gain
- No Cost Inflation Index adjustment
- Simpler to compute
- Only option for NRIs, companies, LLPs
Old method — with indexation
- Only for resident individuals / HUF
- Only on property acquired before 23 Jul 2024
- Cost stepped up by the CII
- Often lower tax on long-held property
- Choose whichever gives less tax
You do not elect one method upfront. Compute tax under 12.5% (no indexation) and under 20% (with indexation), then pay the lower of the two. For property bought many years ago, indexation usually wins; for recent buys with modest gains, the flat 12.5% is often lower.
Not sure which method saves more on your sale?
Get My LTCG Computed →How the Tax Adds Up — ₹90L Sale
A resident sells a flat in FY 2025-26 for ₹90 lakh, bought in FY 2010-11 for ₹30 lakh. Because it was acquired before 23 July 2024, both methods are compared (CII 2010-11 = 167, CII 2025-26 = 363).
12.5% Without indexation
20% With indexation
Here the 20% with indexation method gives the lower tax (₹4.96L vs ₹7.50L), so the seller pays that. Add 4% cess (and surcharge if applicable). Broker commission, legal fees and eligible improvement costs are further deductible from the gain.
If the property is held for 24 months or less, the whole gain is Short-Term, added to your total income and taxed at slab rates — there is no 12.5%/20% concession and no indexation. Under the new default regime, slab rates run up to 30% above ₹24 lakh of taxable income.
Want an exact figure for your property? Use the calculator or ask an expert.
Open Capital Gains Calculator →Section 54, 54EC, 54F & 54B Exemptions
You can reduce or eliminate LTCG on property by reinvesting it. These exemptions apply only to long-term gains, not STCG.
| Section | What you sell | Reinvest in | Key limit |
|---|---|---|---|
| 54 | Residential house (LTCG) | Another residential house | 1 yr before / 2 yr after (buy) or 3 yr (build); cost cap ₹10 cr |
| 54EC | Land or building (LTCG) | REC / PFC / IRFC bonds | Within 6 months; max ₹50L; 5-yr lock-in |
| 54F | Any long-term asset | One residential house | Whole net sale proceeds; cost cap ₹10 cr |
| 54B | Urban agricultural land | Another agricultural land | Within 2 years of sale |
NHAI stopped issuing 54EC bonds; eligible issuers are now REC, PFC and IRFC. If you cannot reinvest before the ITR due date, park the gain in a Capital Gains Account Scheme.
- Section 54 — sell a house, buy/build another house; up to two houses once in a lifetime if LTCG ≤ ₹2 crore.
- Section 54EC — invest the gain (up to ₹50 lakh) in specified bonds within 6 months of sale.
- Missed the deadline? Deposit the unused gain in a Capital Gains Account Scheme before filing your return.
- Selling the new house within 3 years reverses the Section 54 / 54F exemption.
Planning to reinvest? Get your Section 54/54EC timelines mapped correctly.
Talk to a Tax Expert →TDS on Property Purchase — Section 194-IA & 195
The buyer, not the seller, deducts TDS. From a resident seller, TDS is 1% under Section 194-IA when the consideration (or stamp-duty value) is ₹50 lakh or more — deposited via Form 26QB within 30 days, no TAN needed. From an NRI seller, TDS is deducted under Section 195 at the applicable LTCG rate (12.5% plus surcharge and cess) on the gain.
| Seller | Section | TDS rate | Form |
|---|---|---|---|
| Resident — value ≥ ₹50 lakh | 194-IA | 1% of value | 26QB |
| Resident — value < ₹50 lakh | — | Nil | — |
| NRI — long-term | 195 | 12.5% + surcharge + cess | 27Q |
| NRI — short-term | 195 | Slab + surcharge + cess | 27Q |
From 1 Oct 2024, with multiple buyers/sellers the ₹50 lakh 194-IA threshold is judged on the total consideration. An NRI can seek a lower/nil-deduction certificate (Form 13) to avoid over-deduction.
Property Sale Tax Checklist
- Determine holding period (LTCG vs STCG)
- Compute gain both ways (12.5% vs 20%)
- Collect purchase deed & cost proofs
- Add broker, legal & improvement costs
- Apply CII for indexation (if eligible)
- Plan Section 54 / 54EC reinvestment
- Use Capital Gains Account Scheme if needed
- Ensure buyer deducted correct TDS
- Report gains in ITR-2 (or ITR-3)
- Reconcile TDS with AIS / Form 26AS
- Pay advance tax on the gain
- Keep records for 6+ years
The single biggest saving usually comes from correctly choosing between 12.5% and 20% with indexation and from timely Section 54/54EC reinvestment. NRIs should also apply for a lower-deduction certificate — otherwise TDS is deducted on the gross sale value, locking up cash until a refund.
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