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Income Tax on Property Sale — LTCG, Indexation & Section 54 Exemption

Updated: 3 June 2026  |  Income-tax Act 2025  |  Budget 2024

Property sale: LTCG at 12.5% without indexation OR 20% with indexation (for pre-July 2024 acquisitions). Choose lower tax. STCG (held ≤24 months): slab rates. Save LTCG: Section 54 (buy new house) or Section 54EC (₹50L in bonds). Buyer deducts 1% TDS if sale >₹50L.
12.5%
LTCG on property from July 23, 2024 onwards — 12.5% without indexation. Compare with 20% + indexation for older properties.
For property acquired before July 23, 2024: choose LOWER of (12.5% no indexation) vs (20% with indexation). STCG held ≤24 months: slab rates. Section 54: reinvest in residential house to save LTCG.

Property Sale Capital Gains — Quick Reference

Holding PeriodTax RateIndexationExemption
≤ 24 months (STCG)Slab ratesN/ANone
> 24 months (LTCG) — post July 23, 2024 acquisition12.5%NoSection 54, 54EC
> 24 months (LTCG) — pre July 23, 2024 acquisition12.5% OR 20%Optional (20% only)Section 54, 54EC
Rural agricultural landExempt—Section 10(37)
Urban agri land > 24 months12.5%/20%OptionalSection 54B

Frequently Asked Questions

What is the capital gains tax on sale of property in India?
Property sale capital gains tax (Budget 2024 rules): Long-term Capital Gains (LTCG) — held > 24 months: Option 1: 12.5% without indexation (from July 23, 2024). Option 2: 20% with indexation — available ONLY for properties acquired before July 23, 2024. For property acquired AFTER July 23, 2024: only 12.5% rate, no indexation. Choose the option giving lower tax. Short-term Capital Gains (STCG) — held ≤ 24 months: taxed at slab rates (added to total income). Example: Property bought 2015 at ₹50L, sold 2026 at ₹1Cr. LTCG = ₹50L gain. Option 1: 12.5% × ₹50L = ₹6.25L. Option 2: ₹50L indexed (say 1.6x) = ₹80L cost, gain ₹20L, 20% × ₹20L = ₹4L. Choose Option 2 (lower). No annual exemption for property LTCG (unlike equity which has ₹1.25L exemption).
How is LTCG from property calculated with indexation?
Indexed cost calculation for property LTCG: Cost Inflation Index (CII) numbers are notified by Income Tax Department annually (base year 2001-02 = 100). Formula: Indexed Cost = Actual Cost × (CII of sale year / CII of purchase year). Example: Property bought FY 2010-11 at ₹30L. CII 2010-11 = 167. Sold FY 2025-26 for ₹90L. CII 2025-26 = 363. Indexed cost = ₹30L × (363/167) = ₹65.15L. LTCG with indexation = ₹90L − ₹65.15L = ₹24.85L. Tax at 20% = ₹4.97L. Without indexation: ₹90L − ₹30L = ₹60L gain. Tax at 12.5% = ₹7.5L. Choose 20% with indexation (₹4.97L < ₹7.5L). Improvement costs: add renovation/improvement expenditure to cost (indexed if done before 2001). Transfer expenses (broker, legal): deductible. Inherited property: use FMV on April 1, 2001 as cost basis (for pre-2001 properties).
What are Section 54 and 54EC exemptions on property capital gains?
LTCG exemption on property sale: Section 54 — Reinvestment in residential property: Sell a residential house → reinvest LTCG in another residential house. Must invest within: 1 year before or 2 years after sale (purchase), OR 3 years after sale (construction). Maximum 2 houses (if LTCG ≤ ₹2 crore, once in a lifetime for second house). Exemption: lower of LTCG or cost of new house. If new house is sold within 3 years: exemption reversed (LTCG on new house + original gain). Section 54EC — NHAI/REC bonds: Invest up to ₹50L in specified bonds (NHAI or REC bonds). Lock-in: 5 years. Must invest within 6 months of sale. Exemption: amount invested (max ₹50L). Both 54 and 54EC can be used together: invest some in house + some in bonds. Section 54F: For sale of any capital asset (not just house) → invest proceeds in residential house.
What is TDS when buying property from resident / NRI seller?
TDS on property purchase — buyer's obligation: Section 194IA (Resident seller): If property value > ₹50 lakh, buyer deducts 1% TDS of sale value. Deposit TDS within 30 days of the end of the month using Form 26QB online (TIN NSDL). No TAN required — use PAN. Issue Form 16B to seller within 15 days. Property value = actual + Club membership + car parking + other charges. Section 195 (NRI seller): If buying from NRI, TDS rate = 20% of sale proceeds (approximately) or actual LTCG rate after 35.88% for LTCG. NRI seller should get lower deduction certificate (Form 13) from tax officer. NRI can file ITR to claim excess TDS refund. Important: failure to deduct TDS — buyer is treated as assessee in default; interest + penalty applicable. TDS applies even in property exchange transactions.
Can agricultural land sale gains be exempt from capital gains tax?
Agricultural land capital gains — Section 10(37): Rural agricultural land: NOT a capital asset — sale is EXEMPT from capital gains tax entirely. Definition of rural agricultural land: land NOT within jurisdiction of municipality/cantonment board having population ≥ 10,000 AND not within 2km (population 10K-1L), 6km (1L-10L), or 8km (>10L) of such municipality. Urban agricultural land (within these distances): IS a capital asset — capital gains tax applies. LTCG on urban agri land held > 24 months: 12.5% (no indexation) or 20% (with indexation, if acquired before July 23, 2024). Section 54B: Reinvestment exemption for agricultural land gain — if LTCG from urban agri land is reinvested in another agricultural land within 2 years: exemption available (max LTCG amount or cost of new land). Compulsory acquisition: government compulsorily acquiring agricultural land — compensation is generally exempt (Section 10(37)).

Related Pages

Capital Gains Tax TDS on Property Sale Section 54 Exemption NRI Property Tax GST on Flat Purchase
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