How is capital gains tax calculated on sale of house property? Selling a house property in India triggers capital gains tax. If you held the property for more than 24 months, the gain is long-term capital gain (LTCG), taxed at 12.5% without indexation. For property purchased before July 23, 2024, resident individual and HUF taxpayers can elect the lower of 12.5% without indexation or 20% with indexation. Short-term gains (property held under 24 months) are taxed at your regular income tax slab rate. The buyer deducts 1% TDS on the full sale consideration when it (or the stamp duty value) is Rs 50 lakh or more. Gains can be reduced or eliminated by reinvesting under Section 54 (new house) or Section 54EC (specified bonds). (Sources: Finance Act 2024, Income Tax Act 2025, CBDT Notification on CII)
Property is the largest asset most Indians own. When you sell it, capital gains tax can run into lakhs. A Rs 80 lakh gain at 12.5% is Rs 10 lakh in tax before cess. With the right exemption, that tax can drop to zero.
This guide covers the complete calculation for FY 2026-27 (AY 2027-28): holding period rules, the 12.5% vs 20% indexation election, two worked examples showing when each rate wins, TDS obligations, Section 54 and 54EC exemptions, and how to report the sale in your ITR. For the general capital gains framework across all asset classes, see our capital gains tax overview.
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Step 1: Determine the Holding Period
The holding period decides whether your gain is short-term or long-term. For immovable property (house, flat, plot, commercial building), the threshold is 24 months.
| Holding Period | Type | Tax Rate |
|---|---|---|
| Up to 24 months | Short-term capital gain (STCG) | Your income tax slab rate (up to 30% + surcharge + cess) |
| More than 24 months | Long-term capital gain (LTCG) | 12.5% flat, or 20% with indexation for pre-July 2024 purchases |
Start date: Date of purchase as per the registered sale deed. For under-construction property, the date of the allotment letter (not possession or registration).
End date: Date of sale as per the registered sale deed executed with the buyer.
Example: You bought a flat on March 15, 2024 and sold it on April 10, 2026. The holding period is 24 months and 26 days: more than 24 months. This is LTCG.
Step 2: Compute the Capital Gain
The basic formula:
Capital Gain = Sale Consideration - Cost of Acquisition - Cost of Improvement - Transfer Expenses
| Component | What It Includes |
|---|---|
| Sale Consideration | Amount received or accruing from the sale. Subject to Section 50C: if stamp duty value exceeds sale price by more than 10%, stamp duty value is deemed the sale consideration. |
| Cost of Acquisition | Price you originally paid for the property (registration, stamp duty at purchase). For inherited property, the previous owner's cost applies. |
| Cost of Improvement | Capital expenditure on additions or alterations (renovation, extra floor, structural changes). Routine maintenance and repairs do not count. |
| Transfer Expenses | Brokerage paid, legal fees for the sale deed, advertising costs to find a buyer. |
Step 3: Apply the Correct LTCG Tax Rate
This is where FY 2026-27 gets complicated. The Finance Act 2024 changed the rules effective July 23, 2024, and the Income Tax Act 2025 carries them into FY 2026-27 in Section 197:
- Default: LTCG on land or building is taxed at 12.5% without indexation (Section 197(1)).
- Option for older property: a resident individual or HUF selling land or building acquired before July 23, 2024 pays the lower of 12.5% without indexation and 20% with indexation (Section 197(3), formerly the proviso to Section 112(1)).
- Everyone else (non-residents, companies, firms, LLPs, and anyone selling property acquired on or after July 23, 2024) pays 12.5% without indexation.
- Surcharge on LTCG is capped at 15%, and 4% cess applies on top.
Under the 2025 Act, Section 54 is now Section 82, Section 54EC is Section 85 and Section 50C is Section 78; the rules are the same.
CII Table for Common Purchase Years
For the indexation calculation, you need the Cost Inflation Index of the year you bought and the year you sold. The base year is 2001-02 (CII = 100).
| Financial Year of Purchase | CII | Multiplier (CII 384 / CII of Purchase Year) |
|---|---|---|
| 2001-02 (or before, deemed at FMV) | 100 | 3.84x |
| 2005-06 | 117 | 3.28x |
| 2008-09 | 137 | 2.80x |
| 2010-11 | 167 | 2.30x |
| 2012-13 | 200 | 1.92x |
| 2014-15 | 240 | 1.60x |
| 2016-17 | 264 | 1.45x |
| 2018-19 | 280 | 1.37x |
| 2020-21 | 301 | 1.28x |
| 2022-23 | 331 | 1.16x |
| 2023-24 | 348 | 1.10x |
For the full CII table from 2001-02 to 2026-27, see our Cost Inflation Index guide.
Worked Example 1: Old Property Where Indexation Wins
Facts: Mr. Sharma bought a flat in Pune in FY 2005-06 for Rs 25,00,000. He spent Rs 3,00,000 on renovation in FY 2012-13 (CII 200). He sells the flat in FY 2026-27 for Rs 90,00,000. Brokerage paid: Rs 90,000.
Holding period: 21 years. LTCG applies.
Option A: 12.5% Without Indexation
| Component | Amount |
|---|---|
| Sale Consideration | Rs 90,00,000 |
| Less: Cost of Acquisition | (Rs 25,00,000) |
| Less: Cost of Improvement | (Rs 3,00,000) |
| Less: Transfer Expenses (brokerage) | (Rs 90,000) |
| LTCG | Rs 61,10,000 |
| Tax at 12.5% | Rs 7,63,750 |
| Add: Cess at 4% | Rs 30,550 |
| Total Tax | Rs 7,94,300 |
Option B: 20% With Indexation
| Component | Calculation | Amount |
|---|---|---|
| Sale Consideration | Rs 90,00,000 | |
| Indexed Cost of Acquisition | Rs 25,00,000 x 384/117 | (Rs 82,05,128) |
| Indexed Cost of Improvement | Rs 3,00,000 x 384/200 | (Rs 5,76,000) |
| Transfer Expenses | (Rs 90,000) | |
| Indexed LTCG | Rs 1,28,872 | |
| Tax at 20% | Rs 25,774 | |
| Add: Cess at 4% | Rs 1,031 | |
| Total Tax | Rs 26,805 |
Worked Example 2: Recent Purchase Where 12.5% Wins
Facts: Ms. Patel bought a flat in Bangalore in FY 2018-19 for Rs 60,00,000. No improvements. She sells in FY 2026-27 for Rs 1,50,00,000. Brokerage: Rs 1,50,000.
Holding period: 8 years. LTCG applies.
Option A: 12.5% Without Indexation
| Component | Amount |
|---|---|
| Sale Consideration | Rs 1,50,00,000 |
| Less: Cost of Acquisition | (Rs 60,00,000) |
| Less: Transfer Expenses | (Rs 1,50,000) |
| LTCG | Rs 88,50,000 |
| Tax at 12.5% | Rs 11,06,250 |
| Add: Cess at 4% | Rs 44,250 |
| Total Tax | Rs 11,50,500 |
Option B: 20% With Indexation
| Component | Calculation | Amount |
|---|---|---|
| Sale Consideration | Rs 1,50,00,000 | |
| Indexed Cost of Acquisition | Rs 60,00,000 x 384/280 | (Rs 82,28,571) |
| Transfer Expenses | (Rs 1,50,000) | |
| Indexed LTCG | Rs 66,21,429 | |
| Tax at 20% | Rs 13,24,286 | |
| Add: Cess at 4% | Rs 52,971 | |
| Total Tax | Rs 13,77,257 |
Rule of Thumb: When Does Indexation Win?
The math reduces to a simple test. Let R = CII of sale year / CII of purchase year.
Indexation wins when: Sale Price / Purchase Price < (0.2R - 0.125) / 0.075
In plain language:
| CII Multiplier (R) | Indexation Wins If Property Appreciated Less Than |
|---|---|
| 1.37x (bought 2018-19) | 2.0x |
| 1.60x (bought 2014-15) | 2.6x |
| 1.92x (bought 2012-13) | 3.5x |
| 2.30x (bought 2010-11) | 4.5x |
| 2.80x (bought 2008-09) | 5.8x |
| 3.28x (bought 2005-06) | 7.1x |
| 3.84x (bought 2001-02) | 8.6x |
If your property appreciated more than the threshold, 12.5% without indexation gives lower tax. The older the purchase, the higher the threshold, which is why indexation almost always wins for very old properties.
STCG on Property (Held Under 24 Months)
If you sell within 24 months, the gain is short-term. There is no special rate. STCG on property is added to your total income and taxed at your applicable slab rate, which can be up to 30% plus surcharge and cess. No indexation, no Section 54 exemption (Section 54 requires LTCG).
TDS on Property Sale: Section 194IA
When you sell property for Rs 50 lakh or more, the buyer must deduct TDS at 1% of the total sale consideration (or stamp duty value, if higher). This is not 1% of the gain, it is 1% of the full sale price.
| Rule | Detail |
|---|---|
| Threshold | Sale consideration or stamp duty value is Rs 50 lakh or more (aggregate for all buyers and sellers) |
| TDS Rate | 1% of the sale consideration or stamp duty value, whichever is higher (not just the gain) |
| Who deducts | The buyer |
| No PAN | If seller does not provide PAN, TDS rate increases to 20% |
| Agricultural land | Exempt from Section 194IA |
| NRI seller | TDS falls under Section 195, not 194IA. Rate is 12.5% for LTCG. |
| Form (pre-April 2026) | Buyer files Form 26QB within 30 days of month-end |
| Form (from April 2026) | Form 141 replaces Form 26QB under Income Tax Act 2025 |
| TDS certificate | Form 16B (or Form 132 from April 2026) issued to seller within 15 days from the due date of the challan-cum-statement |
The TDS deducted by the buyer appears in the seller's Form 26AS / AIS. The seller can claim credit for this TDS while filing their ITR, reducing the final tax payable.
Section 50C: Stamp Duty Deeming Provision
If you sell your property below the stamp duty value (circle rate / guideline value), the Income Tax Department can substitute the stamp duty value as the deemed sale consideration. This means your capital gain is computed on the stamp duty value, not the actual sale price.
The 10% tolerance band: If the actual sale price is within 10% of the stamp duty value, the actual sale price is accepted. The deeming applies only when the stamp duty value exceeds the actual sale price by more than 10%.
Example: Stamp duty value of a flat is Rs 80 lakh. You sell it for Rs 70 lakh. Since Rs 80 lakh exceeds Rs 70 lakh by more than 10% (it exceeds by 14.3%), the deemed sale consideration is Rs 80 lakh. If you sold it for Rs 73 lakh instead (stamp duty value about 9.6% above the price), the actual sale price of Rs 73 lakh is accepted.
For a detailed analysis, see our Section 50C guide.
Section 54: Reinvest in Another House
Section 54 is the primary exemption for property sellers. If you sell a residential house and reinvest the capital gain in another residential house, the gain is exempt.
| Condition | Requirement |
|---|---|
| Asset sold | Residential house property (long-term, held > 24 months) |
| Taxpayer | Individual or HUF only |
| Reinvestment | Purchase a new residential house in India |
| Timeline: purchase | 1 year before or 2 years after the date of sale |
| Timeline: construction | Complete within 3 years from the date of sale |
| Exemption amount | Lower of LTCG or cost of new house |
| Cap | Rs 10 crore (from AY 2024-25, Finance Act 2023) |
| Lock-in | New house must not be sold within 3 years of purchase/construction |
| Number of houses | One residential house; if LTCG does not exceed Rs 2 crore, two houses once in a lifetime |
If you sell the new house within 3 years: The exemption claimed under Section 54 is deducted from the cost of the new house when computing the gain on its sale, so the earlier exempt gain is effectively taxed in that year along with the gain on the new house.
Capital Gains Account Scheme (CGAS)
If you have not purchased or constructed the new house before the ITR filing due date (July 31 for most individuals, August 31 for non-audit business or professional income, October 31 for audit cases), you must deposit the unutilised gain in a Capital Gains Account at a designated bank. This preserves your Section 54 exemption. The amount must be used to buy or construct a house within the time limits. If not used within 3 years, the deposited amount becomes taxable as LTCG in that year.
For the full exemption playbook covering Section 54, 54F, and 54EC side by side, see our capital gains exemption guide.
Section 54EC: Invest in Specified Bonds
If reinvesting in another house is not feasible, you can invest the capital gain in specified bonds under Section 54EC. This exemption is available for gains from sale of land or building (not limited to residential property).
| Rule | Detail |
|---|---|
| Eligible bonds | Bonds of notified issuers (NHAI, REC, PFC, IRFC); check which issues are open when you invest |
| Investment limit | Rs 50 lakh, which applies within a financial year and across the FY of sale and the next FY combined |
| Investment deadline | Within 6 months of the date of sale |
| Lock-in | 5 years. Cannot be transferred, pledged, or redeemed early. |
| Interest rate | Around 5% to 5.25% p.a., fixed for the 5-year term (check the issuer's current rate) |
| Tax on interest | Bond interest is fully taxable as income from other sources |
Can you combine Section 54 and 54EC? Yes. If your LTCG is Rs 80 lakh, you can reinvest Rs 50 lakh in 54EC bonds and claim Section 54 on the remaining Rs 30 lakh by purchasing a house. The combined exemption cannot exceed the total LTCG.
Joint Ownership: How Gains Are Split
When jointly owned property is sold, each co-owner computes their capital gain separately based on their ownership share.
Example: A husband and wife own a flat 50:50. They sell it for Rs 1,20,00,000. Each reports a sale consideration of Rs 60,00,000 and claims their half of the original cost. Each can independently claim Section 54 or 54EC exemption.
This means a jointly owned property can claim up to Rs 20 crore in Section 54 exemption (Rs 10 crore per co-owner) and up to Rs 1 crore in Section 54EC bonds (Rs 50 lakh per co-owner).
Filing in Your ITR: Schedule CG
Capital gains on property sale are reported in Schedule CG of ITR 2 or ITR 3 (ITR 1 cannot be used if you have capital gains).
Key entries:
- Section B: Income from Capital Gains: Select "Land or Building or Both" under long-term or short-term as applicable.
- Full value of consideration: Enter the sale price (or stamp duty value if Section 50C applies).
- Cost of acquisition: Enter actual cost or indexed cost, depending on which method you choose.
- Deductions under Section 54/54EC: Enter the exemption amount in the relevant field.
- Schedule SI: LTCG at special rate (12.5% or 20%) is auto-populated.
If you elected 20% with indexation for a pre-July 2024 property, fill the indexed cost fields provided for that option so the lower tax is applied.
Common Mistakes to Avoid
- Ignoring Section 50C: Selling below circle rate without realising the stamp duty value becomes deemed consideration. Get a valuation report if the property is genuinely worth less than the stamp value.
- Missing the 6-month deadline for 54EC bonds: This is a hard deadline. Bonds ordered on Day 181 do not qualify. Place the order well in advance.
- Not opening a CGAS account: If you claim Section 54 exemption in your ITR but have not yet purchased the new house and have not deposited in CGAS, the exemption can be denied during assessment.
- Counting registration date instead of allotment for under-construction: The holding period starts from allotment, which can make the difference between STCG and LTCG.
- Forgetting TDS credit: The 1% TDS deducted by the buyer under Section 194IA is your money. Claim it in Schedule TDS2 of your ITR. Verify it appears in your Form 26AS or AIS before filing.
Frequently Asked Questions
How much tax on selling property in India?
Long-term capital gains on property held over 24 months are taxed at 12.5% without indexation. For property purchased before July 23, 2024, you can choose the lower of 12.5% without indexation or 20% with indexation. Short-term gains (held under 24 months) are taxed at your income tax slab rate.
Is indexation available on property sale in FY 2026-27?
Only for property purchased before July 23, 2024, and only for resident individuals and HUFs. The taxpayer can choose between 20% with indexation (CII 384 for FY 2026-27) or 12.5% without indexation, whichever gives lower tax. Property purchased on or after July 23, 2024 gets only the flat 12.5% rate.
How to avoid capital gains tax on property sale?
Reinvest the capital gain in another residential house within 2 years (Section 54, cap Rs 10 crore) or invest up to Rs 50 lakh in REC/PFC/IRFC bonds within 6 months (Section 54EC). You can combine both. If reinvestment is not done before ITR filing, deposit in a Capital Gains Account Scheme.
Who deducts TDS on property sale?
The buyer deducts TDS at 1% of the sale consideration or stamp duty value, whichever is higher, under Section 194IA (Section 393(1) under Income Tax Act 2025) if either is Rs 50 lakh or more. The buyer files Form 26QB (Form 141 from April 2026) and issues Form 16B (Form 132 from April 2026) to the seller.
What is Section 50C and how does it affect property sale tax?
If you sell property below the stamp duty value by more than 10%, the Income Tax Department deems the stamp duty value as the sale consideration. This means your capital gains are calculated on the higher stamp duty value, not the actual sale price.
Can I claim Section 54 exemption on two house properties?
Only once in your lifetime. If the long-term capital gain does not exceed Rs 2 crore, you may reinvest it in two residential houses in India and claim Section 54 on both, but once used this option can never be claimed again. In every other case the exemption is limited to one residential house, subject to the Rs 10 crore cap.
What is the holding period for long-term capital gains on property?
24 months. If you held the property for more than 24 months before selling, the gains are long-term. The holding period starts from the date of purchase (or allotment letter date for under-construction property) and ends on the date of sale.
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Sources: Finance (No. 2) Act, 2024; Income Tax Act 2025 (Sections 67 to 91 and 197); Finance Act 2025; CBDT Notification No. 85/2026 dated July 15, 2026 (CII for FY 2026-27: 384); Income Tax Department (incometaxindia.gov.in)
