Income Tax on Property Sale — Capital Gains Guide 2025-26

Last updated: 3 June 2026

Selling a property in India triggers capital gains tax. If held for more than 24 months it is Long-Term Capital Gains (LTCG) taxed at 12.5% without indexation (Budget 2024 change from July 23, 2024). For properties acquired before that date, you may alternatively choose 20% with indexation if it results in lower tax. Short-term gains (held ≤ 24 months) are taxed at your applicable income slab rate.

12.5%

LTCG rate on property sold on or after July 23, 2024 (Budget 2024). For properties acquired before July 23, 2024, compare with 20% + indexation and pick the lower tax option.

Short-Term vs Long-Term Capital Gains on Property

The holding period determines whether gains are short-term or long-term. For immovable property (residential, commercial, land), the threshold is 24 months. If you hold the property for more than 24 months, it is a long-term capital asset; 24 months or less, it is short-term.

STCG (≤ 24 months): Taxed as ordinary income at your applicable income tax slab rate — no special rate applies.
LTCG (> 24 months): Taxed at 12.5% (no indexation) for properties acquired on or after July 23, 2024. For properties acquired before July 23, 2024, you may choose 20% with Cost Inflation Index (CII) indexation if that gives a lower liability.

Capital Gains Rates by Property Type

Property Type	Holding Period	STCG Rate	LTCG Rate	Exemptions Available
Residential House	> 24 months = LT	Slab rate	12.5% (no indexation)*	Sec 54, 54EC, 54F
Commercial Property	> 24 months = LT	Slab rate	12.5% (no indexation)*	Sec 54EC
Land (non-agricultural)	> 24 months = LT	Slab rate	12.5% (no indexation)*	Sec 54EC, 54F
Agricultural Land (rural)	—	Exempt	Exempt	Not a capital asset

* For properties acquired before July 23, 2024: taxpayer may opt for 20% with CII indexation if it gives lower tax.

How to Compute Capital Gains on Property Sale

Step 1 — Full Value of Consideration: The higher of (a) actual sale price received, or (b) stamp duty value (circle rate) as per Section 50C. If stamp duty value ≤ 110% of actual price, actual price is used.

Step 2 — Cost of Acquisition: Purchase price + stamp duty + registration charges + brokerage paid at the time of purchase. Also include the cost of improvement (renovation, extension, additional construction) done after purchase.

Step 3 (LTCG with indexation, old regime only): Index the cost using CII — Indexed Cost = (Cost × CII of sale year) ÷ CII of purchase year (or CII of 2001-02 if acquired before April 1, 2001).

Step 4 — Capital Gains: Full Value of Consideration minus Indexed Cost (or actual cost for new 12.5% regime) minus transfer expenses (brokerage, legal charges paid at sale).

TDS on Property Purchase — Section 194IA

When you buy a property worth ₹50 lakh or more, you (the buyer) must deduct 1% TDS on the total consideration under Section 194IA. This is deducted at the time of payment or credit (whichever is earlier). The TDS must be deposited using Form 26QB within 30 days from the end of the month in which TDS was deducted. As seller, this TDS credit appears in your Form 26AS and AIS and can be claimed in your ITR.

Capital Gains Exemptions — Sections 54, 54EC, 54F

Section 54 — If you sell a residential house and reinvest the LTCG in another residential house (in India) within 1 year before or 2 years after the sale (or construct within 3 years), the LTCG is exempt. Reinvestment is capped at ₹10 crore for gains exceeding that amount. One property purchase only; two houses allowed once in a lifetime if gain ≤ ₹2 crore.

Section 54EC — Invest LTCG (up to ₹50 lakh per financial year) in government-notified bonds (NHAI, REC) within 6 months of the sale. Lock-in is 5 years.

Section 54F — If you sell any capital asset other than a residential house and reinvest the entire net sale consideration (not just LTCG) in a residential house, the proportional LTCG is exempt. You must not own more than one other residential house on the date of sale.

Inherited Property — Special Rules

For inherited or gifted property, the cost of acquisition is the cost paid by the previous owner. If the previous owner acquired it before April 1, 2001, the cost is taken as FMV on April 1, 2001 (or actual cost, whichever is higher). The holding period includes the period held by the previous owner, which often makes inherited property long-term from day one.

Frequently Asked Questions

Can I choose between 12.5% LTCG without indexation and 20% with indexation for properties bought before July 23, 2024?

Yes. For properties acquired before July 23, 2024, the Income-tax Act 2025 allows you to choose whichever method gives a lower tax liability — either 12.5% on LTCG without indexation (new regime) or 20% on LTCG with indexation (old regime). For properties acquired on or after July 23, 2024, only the 12.5% without-indexation rate applies.

Who deducts TDS when I sell a property and what is the rate?

Under Section 194IA, the buyer is responsible for deducting 1% TDS on the total sale consideration at the time of payment, provided the consideration is ₹50 lakh or more. The buyer must deposit this TDS using Form 26QB within 30 days from the end of the month of deduction. As the seller, you can claim credit of this TDS in your ITR.

What if the circle rate (stamp duty value) is higher than the actual sale price I received?

Under Section 50C, if the stamp duty value (circle rate) of the property exceeds the actual sale consideration, the stamp duty value is deemed to be the full value of consideration for computing capital gains — but only if the stamp duty value exceeds 110% of the actual sale price. If the stamp duty value is up to 110% of the actual price, the actual sale price is used. You can contest the circle rate by approaching the Stamp Valuation Authority.

How long do I have to reinvest the gains to claim Section 54 exemption?

To claim Section 54 exemption (reinvestment in a residential house), you must purchase the new house within 1 year before or 2 years after the date of transfer, or construct it within 3 years from the date of transfer. If you are unable to invest before the ITR due date, deposit the amount in a Capital Gains Account Scheme (CGAS) and invest from that account within the specified period.

What is the cost of acquisition for inherited property?

For inherited property, the cost of acquisition is the actual cost paid by the previous owner (the person from whom you inherited). If the property was acquired by the previous owner before April 1, 2001, the cost is taken as the Fair Market Value (FMV) as on April 1, 2001, or the actual cost — whichever is higher. The holding period also includes the period for which the previous owner held the property.

Capital Gains Tax Overview LTCG on Shares & Mutual Funds Section 54 Exemption TDS on Property Purchase (194IA) ITR-2 for Capital Gains

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