Capital Gains Tax When Selling Property in India: Seller Guide

How is property sale taxed in India? When you sell immovable property in India, the profit is taxable as capital gains. If held for more than 24 months, LTCG is taxed at 12.5% without indexation (or 20% with indexation for pre-July 2024 purchases, whichever results in lower tax for individuals and HUFs). Short-term gains are added to your income and taxed at slab rates. Sellers can claim exemptions under Sections 54, 54EC, and 54F to reduce the taxable gain.

Selling property is, for most Indians, the single largest taxable event of their financial lives. The capital gains tax on a single property sale can run into several lakhs, and the rules that determine how much you owe changed substantially with the Finance Act 2024. Getting the computation wrong, missing an exemption deadline, or underreporting the sale consideration under Section 50C can trigger assessment proceedings, interest, and penalties that dwarf the original error. This guide covers every rule a property seller needs to know for AY 2026-27 (FY 2025-26), from determining whether your gain is long-term or short-term, through the indexation choice, to claiming exemptions and filing the return.

Is Your Property Long-Term or Short-Term?

The classification of your capital gain as long-term or short-term determines the tax rate that applies, the availability of indexation, and which exemptions you can claim. The threshold for immovable property (land, building, or both) is 24 months. If you held the property for more than 24 months from the date of acquisition to the date of sale, it is a long-term capital asset. If 24 months or less, it is short-term.

The 24-month threshold for land and buildings has applied since FY 2017-18 (Finance Act 2017 reduced it from 36 months). Finance (No. 2) Act 2024 kept it at 24 months for all unlisted assets from 23 July 2024. This means properties held for just over two years qualify as long-term.

Date of Acquisition: Key Rules

For a straightforward purchase, the date of acquisition is the date on the purchase deed (registered sale deed or agreement for sale).

Inherited property: When property is received through a will or inheritance, the holding period includes the period for which the previous owner held the property. In most inheritance chains, this pushes the total holding period well beyond 24 months, making almost all inherited property sales long-term. See our detailed guide on capital gains on inherited property sale.

Under-construction property: For a flat purchased under a builder-buyer agreement, the holding period starts from the date of allotment (the date of the agreement or booking), not the date of possession. This is a critical distinction. If you booked a flat in 2022 and received possession in 2024, the holding period runs from 2022.

Gifted property: When property was received as a gift, the holding period includes the period for which the donor held it, plus the period from receipt of gift to sale.

Current Capital Gains Tax Rates on Property

Tax Rate Chart

LTCG tax rates on property sale (AY 2026-27)

LTCG (property bought on/after 23 July 2024)

Flat rate, no indexation benefit. Applies to all taxpayers.

12.5%

LTCG with indexation (property bought before 23 July 2024)

Available to resident individuals and HUFs only. Choose whichever produces lower tax.

20%

STCG (held 24 months or less)

Added to total income. Taxed per applicable income tax slab.

Slab rate

Source: Finance Act 2024, applicable from AY 2025-26 onwards

Post-July 2024 Purchases: 12.5% Without Indexation

If you purchased property on or after 23 July 2024 and sell it after holding for more than 24 months, the LTCG is taxed at a flat 12.5% on the difference between sale consideration and actual cost of acquisition. No indexation adjustment is available. This applies to all taxpayer categories: individuals, HUFs, companies, firms, LLPs, and trusts.

Pre-July 2024 Purchases: The Dual-Rate Election

If the property was purchased before 23 July 2024, resident individuals and HUFs get a choice:

• Option A: 12.5% on (sale consideration minus actual cost of acquisition), without indexation, or
• Option B: 20% on (sale consideration minus indexed cost of acquisition), with indexation using the Cost Inflation Index (CII)

You pick whichever option results in a lower tax liability. This election is available on a per-asset basis. For each property you sell, compute both ways and choose the better outcome.

Companies, LLPs, firms, AOPs, and non-resident taxpayers do not get the 20% + indexation option. They pay 12.5% flat without indexation.

Short-Term Capital Gains

If you held the property for 24 months or less, the gain is short-term. STCG on immovable property is added to your total income and taxed at your applicable slab rate. No special concessional rate applies. The income tax slab rates for FY 2026-27 determine your effective tax rate.

Surcharge and Cess

All capital gains tax figures above are base rates. On top of these, 4% Health and Education Cess applies to the total income tax (including capital gains tax). Additionally, surcharge applies based on your total income level:

For LTCG (and STCG under Section 111A), the surcharge on that part of the tax is capped at 15% regardless of the income level.

The Indexation Choice: 12.5% vs 20% (Worked Example)

This is where real money is at stake. Let us walk through a detailed example to see how the choice works.

Facts: You purchased a residential flat in April 2010 for Rs 30,00,000 (including stamp duty and registration). You sell it in December 2025 for Rs 1,20,00,000.

Relevant CII values: CII for FY 2010-11 = 167; CII for FY 2025-26 = 376 (notified by CBDT).

Option A: 12.5% Without Indexation

• Sale consideration: Rs 1,20,00,000
• Cost of acquisition (actual): Rs 30,00,000
• Capital gain: Rs 1,20,00,000 minus Rs 30,00,000 = Rs 90,00,000
• Tax at 12.5%: Rs 90,00,000 x 12.5% = Rs 11,25,000

Option B: 20% With Indexation

• Sale consideration: Rs 1,20,00,000
• Indexed cost of acquisition: Rs 30,00,000 x (376 / 167) = Rs 67,54,491
• Capital gain: Rs 1,20,00,000 minus Rs 67,54,491 = Rs 52,45,509
• Tax at 20%: Rs 52,45,509 x 20% = Rs 10,49,102

Result: In this example, Option B (20% with indexation) saves approximately Rs 75,898 compared to Option A. For a property held for 15 years with substantial inflation adjustment, the indexation benefit outweighs the higher rate.

When Does 12.5% Win?

The 12.5% rate without indexation tends to be better when:

• The property appreciated steeply relative to inflation (for example, 5x to 10x in a short period)
• The holding period is shorter (say, 3 to 5 years), so the CII multiplier does not inflate the cost significantly
• The property was purchased in a year when CII was already high

The general pattern: the longer you held and the more the CII multiplier inflates your cost, the more likely 20% with indexation is the better choice. Always compute both before filing. For CII values for all years, see our Cost Inflation Index table and indexation guide.

Section 50C: When Stamp Duty Value Exceeds Sale Price

Section 50C is one of the most consequential provisions for property sellers. It states: if the actual sale consideration received on transfer of land or building is less than the stamp duty value (the value assessed or assessable by the stamp valuation authority), then the stamp duty value is deemed to be the full value of consideration for computing capital gains.

In plain terms, if you sell your property for Rs 50 lakh but the government's circle rate values it at Rs 60 lakh, the Income Tax Department treats the sale as having occurred at Rs 60 lakh. You pay capital gains tax on the higher amount.

The 10% Safe Harbor

Section 50C comes with a tolerance margin. The deeming provision applies only if the stamp duty value exceeds 110% of the actual consideration. If the stamp duty value is within 110% of your sale price, the actual sale price is accepted.

Example 1: Property sold for Rs 50 lakh. Stamp duty value is Rs 54 lakh. Since Rs 54 lakh is less than Rs 55 lakh (110% of Rs 50 lakh), the actual consideration of Rs 50 lakh is accepted.

Example 2: Property sold for Rs 50 lakh. Stamp duty value is Rs 60 lakh. Since Rs 60 lakh exceeds Rs 55 lakh (110% of Rs 50 lakh), Section 50C applies and Rs 60 lakh is deemed the sale consideration.

Right to Challenge

If you believe the stamp duty valuation is excessive, you have the right to request the Assessing Officer (AO) to refer the valuation to a District Valuation Officer (DVO) under the proviso to Section 50C. The DVO's valuation then replaces the stamp duty value. This can be valuable in cases where the property has defects, legal encumbrances, or physical conditions that depress its market value below the circle rate.

Section 50C Under the Income Tax Act 2025

Under the new Income Tax Act 2025 (from tax year 2026-27), Section 50C maps to Section 78. The substance is identical: stamp duty value is deemed consideration if it exceeds the actual sale price beyond the tolerance margin. Sellers should be aware of both section numbers for compliance references.

TDS on Property Sale: Buyer's Obligation Under Section 194-IA

When you sell property in India, the buyer is responsible for deducting TDS. Under Section 194-IA, TDS at 1% must be deducted if the sale consideration or the stamp duty value is Rs 50 lakh or more.

Key Rules

• Rate: 1% of the total sale consideration, not just the amount exceeding Rs 50 lakh. If the sale price is Rs 80 lakh, TDS is 1% of Rs 80 lakh = Rs 80,000.
• Who deducts: The buyer. This is the buyer's obligation, not the seller's.
• Form 26QB: The buyer must file Form 26QB (a combined challan and statement) and deposit the TDS with the government within 30 days from the end of the month in which the deduction was made. For deductions from 1 April 2026, under the Income-tax Act 2025, the equivalent form is Form 141.
• Form 16B: After filing Form 26QB, the buyer issues Form 16B to the seller as a TDS certificate (Form 132 for deductions from 1 April 2026). This certificate is the seller's proof for claiming TDS credit in the ITR.
• Stamp duty override: If the stamp duty value exceeds the actual consideration, TDS is deducted on the higher of the two amounts.
• Multiple buyers or sellers: Each buyer deducts TDS on their proportionate share. Each seller receives TDS credit proportionately.

For a step-by-step walkthrough of the buyer's obligations, see our guide on TDS on property purchase under Section 194-IA.

Lower or Nil TDS Certificate Under Section 197

If you are selling property and plan to claim capital gains exemptions (Section 54, 54EC, or 54F) that will reduce your tax liability to zero or near zero, you can apply for a nil or lower TDS certificate under Section 197. Submit Form 13 (Form 128 for applications from 1 April 2026, under the Income-tax Act, 2025) to your jurisdictional AO with details of the exemption you intend to claim. If approved, the buyer deducts zero or reduced TDS instead of the full 1%.

This is especially useful for high-value sales where 1% TDS on, say, Rs 2 crore (Rs 2 lakh) would otherwise be locked up until you file your return and receive a refund.

NRI Sellers: Higher TDS Under Section 195

If you are a Non-Resident Indian (NRI) selling property in India, Section 194-IA does not apply. Instead, the buyer must deduct TDS under Section 195 at the rates in force: 12.5% (plus surcharge and cess) for LTCG or 30% (plus surcharge and cess) for STCG. The buyer needs a TAN for this; from 1 October 2026, Finance Act 2026 removes the TAN requirement for resident individual and HUF buyers. The amounts are substantially higher than the 1% for resident sellers. NRI sellers should almost always apply for a lower TDS certificate under Section 197. See our detailed NRI capital gains tax guide.

Capital Gains Exemptions for Property Sellers

Three exemption provisions can reduce or eliminate the capital gains tax on property sale. They can be claimed individually or in combination, as long as the total exemption does not exceed the total capital gain. For the full breakdown, see our Section 54, 54F, 54EC exemptions guide.

Section 54: Reinvest in a Residential House

Who can claim: Individuals and HUFs who sell a residential house that is a long-term capital asset.

What to do: Purchase a new residential house in India within 1 year before to 2 years after the date of sale, or construct a new house within 3 years of the sale.

How much is exempt: The lower of the LTCG amount or the cost of the new residential house. Maximum exemption: Rs 10 crore (cap introduced by Finance Act 2023).

Number of houses: If LTCG is up to Rs 2 crore, you can invest in two residential houses (one-time option, available once in a lifetime). If LTCG exceeds Rs 2 crore, only one house qualifies.

Lock-in: If the new house is sold within 3 years of purchase or construction, the exemption is clawed back: the exempted gain is deducted from the cost of the new house, which increases the (short-term) capital gain on its sale in that year.

Capital Gains Account Scheme (CGAS): If you have not completed the purchase or construction by the ITR filing due date under Section 139(1) (for AY 2026-27: 31 July 2026 for ITR-2 filers, 31 August 2026 for non-audit business cases, 21 November 2026 for audit cases after the CBDT extension from 31 October), you must deposit the capital gain amount in a CGAS account at a designated bank before the filing deadline. You can withdraw from CGAS as you make payments toward the new property. If the amount is not utilized within the prescribed period, the unutilized balance is taxed as LTCG in the year the deadline expires.

Section 54EC: Invest in Specified Bonds

Who can claim: Any taxpayer (individual, HUF, company, firm, LLP) who sells long-term land or building.

What to do: Invest the capital gain amount (up to Rs 50 lakh in total, counting investments made in the year of sale and the next financial year together) in specified bonds issued by NHAI, REC, PFC, or IRFC within 6 months of the date of sale.

Lock-in: 5 years from the date of investment. If you sell, transfer, or convert the bonds before 5 years, the exemption is reversed and the gain becomes taxable.

Interest on bonds: The interest earned on Section 54EC bonds is taxable as income from other sources. Only the capital gains exemption is tax-free, not the bond interest.

Partial exemption: If you invest less than the total LTCG, the exemption equals the amount invested, and the rest of the gain is taxable.

Section 54F: Sale of Non-Residential Property

Who can claim: Individuals and HUFs who sell any long-term capital asset other than a residential house (for example, commercial property, vacant land, or a shop).

What to do: Invest the net sale consideration (not just the gains) in a new residential house in India. The same timelines as Section 54 apply: purchase within 1 year before to 2 years after, or construct within 3 years.

Key condition: On the date of sale, you should not own more than one residential house (other than the new one being purchased), and you must not buy another house within 2 years or build one within 3 years of the sale.

How much is exempt: Proportionate. Exempt LTCG = LTCG x (amount invested in new house / net sale consideration). To claim full exemption, you must invest the entire net sale consideration.

Cap: Cost of the new house above Rs 10 crore is ignored (Finance Act 2023).

How to Compute Capital Gains: Step-by-Step

Here is the systematic approach to computing capital gains on property sale:

Step 1: Determine the sale consideration. This is the amount received or receivable on sale. If Section 50C applies (stamp duty value exceeds 110% of actual sale price), use the stamp duty value instead.

Step 2: Subtract the cost of acquisition. This is the purchase price you paid for the property. For inherited property, use the previous owner's cost (or FMV as on 1 April 2001 if acquired before that date). For property acquired before 1 April 2001, you can use the higher of actual cost or FMV as on 1 April 2001.

Step 3: Subtract the cost of improvement. Any renovation, construction, or improvement expenditure incurred after the purchase (with receipts) is deductible. Routine maintenance and repairs do not qualify.

Step 4: Subtract expenses on transfer. Brokerage, legal fees, advertising expenses, and stamp duty paid by the seller in connection with the transfer are deductible.

Step 5: Arrive at gross capital gains. Sale consideration minus cost of acquisition minus cost of improvement minus transfer expenses.

Step 6: Apply indexation (if applicable). For pre-July 2024 purchases qualifying as LTCG, compute the indexed cost of acquisition and indexed cost of improvement using the CII. Compare tax at 12.5% (on unindexed gain) with tax at 20% (on indexed gain). Pick the lower amount.

Step 7: Subtract exemptions. Deduct amounts claimed under Section 54, Section 54EC, or Section 54F. The balance is your net taxable capital gain.

Step 8: Compute tax. Apply the applicable rate (12.5% or 20% for LTCG, slab rate for STCG), add surcharge and 4% cess.

Reporting in ITR: Schedule CG

Every property sale must be reported in your income tax return, even if the net taxable gain is zero after exemptions.

Which ITR Form?

• ITR 2: For individuals and HUFs with capital gains but no business or professional income. This is the form most property sellers will use.
• ITR 3: For individuals and HUFs who also have business or professional income.
• ITR 1 (Sahaj) cannot be used if you have capital gains from property sale.

What to Fill in Schedule CG

Report the sale under the "Land and Building" section of Schedule CG:

1. Date of sale and date of purchase (or date of acquisition by the previous owner for inherited property)
2. Sale consideration (actual or deemed under Section 50C)
3. Cost of acquisition (actual and indexed, if applicable)
4. Cost of improvement (actual and indexed, if applicable)
5. Transfer expenses (brokerage, legal fees)
6. Exemptions claimed under Section 54, 54EC, or 54F with details of the reinvestment
7. CGAS deposit receipt details, if applicable

Documents to Retain

• Registered sale deed
• Original purchase deed or allotment letter
• Improvement receipts (renovation, construction bills)
• Brokerage agreements and payment receipts
• CGAS deposit receipt (if applicable)
• Form 16B (TDS certificate from the buyer)
• Section 54EC bond allotment letter
• Valuation report (if FMV as on 1 April 2001 is used)

NRI Filing Considerations

NRI sellers must report the property sale in their Indian ITR. TDS under Section 195 at 12.5% (LTCG) or 30% (STCG), plus surcharge and cess, is deducted by the buyer. The excess TDS is refundable on filing. See our guide on how to pay income tax online for challan payment procedures.

Common Mistakes That Trigger Notices

1. Not reporting the property sale at all. Property transactions appear in your Annual Information Statement (AIS) and Form 26AS. If the sale shows up in AIS but your ITR does not report it, the system generates an automatic mismatch notice. Always report, even if the gain is zero.

2. Using the wrong CII year. The CII year is the financial year of acquisition and the financial year of sale, not the calendar year. Using CII for FY 2010-11 when the property was purchased in March 2011 is correct. Using CII for FY 2011-12 is wrong.

3. Claiming Section 54 exemption without completing the purchase. If you claimed Section 54 in your ITR by saying you will purchase a new house within 2 years, but you did not actually purchase within the deadline and did not deposit in CGAS, the exemption will be disallowed on scrutiny.

4. Not depositing in CGAS before the ITR due date. If your ITR filing deadline is 31 July and you have not yet purchased the new property, the capital gain amount must be deposited in a Capital Gains Account Scheme before 31 July. Missing this deadline means the exemption is lost for that year.

5. Ignoring Section 50C. Selling at a price below the stamp duty value without accounting for the deemed consideration results in underreporting of income. The AO will add the difference, assess tax, and levy interest.

6. Making multiple Section 54 claims across years. Section 54 allows claiming the exemption for each residential property sale, but the two-house option (for gains up to Rs 2 crore) is available only once in a lifetime. Claiming it in multiple years will be disallowed.

7. Missing the 6-month window for Section 54EC bonds. The window is exactly 6 months from the date of sale. Bonds purchased even one day late do not qualify. Plan the investment immediately after receiving sale proceeds.

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This guide is based on Sections 45 to 55 of the Income Tax Act, 1961, the corresponding Sections 67 to 90 of the Income Tax Act, 2025, the Finance (No.2) Act 2024, Section 50C (mapped to Section 78 under ITA 2025), Section 194-IA (TDS on property), Section 195 (TDS on payments to non-residents), Sections 54, 54EC, and 54F (capital gains exemptions), the Cost Inflation Index table as notified by CBDT, and guidance published on incometaxindia.gov.in. Tax laws are subject to amendment; verify the current position before acting.

Frequently Asked Questions

Can I still choose 20% with indexation when selling a flat I bought in 2015?

Yes, if you are a resident individual or HUF. For land or buildings acquired before 23 July 2024, you can compute LTCG both at 12.5% without indexation and at 20% with indexation, and pay the lower tax. Using CII of 376 for FY 2025-26, long holdings often favour indexation. NRIs, companies and firms get only the 12.5% option.

Which form does the buyer use for 1% TDS when I sell a property worth over Rs 50 lakh?

For a resident seller in FY 2025-26 and earlier, the buyer deducts 1% under Section 194-IA and files Form 26QB (a combined challan and statement) within 30 days from the end of the month of deduction, then gives you Form 16B. TDS is on the full amount, or the stamp duty value if higher. Check that it appears in your Form 26AS before filing.

How long do I have to deposit my gain in the Capital Gains Account Scheme?

If you have not bought or built the new house by the due date for filing your return, you must deposit the unused gain in a Capital Gains Account Scheme account before that date. For AY 2026-27 that is 31 July 2026 for most ITR-2 filers. Belated deposits are generally not accepted, so the exemption for that portion can be lost.

Do I pay tax on the stamp duty value if I sold below the circle rate?

Only if the gap is large. Under Section 50C, the stamp duty value replaces your sale price only when it exceeds 110% of the actual consideration. If your sale is within that 10% band, your actual price is accepted. If you think the circle rate is too high for your property, you can ask the Assessing Officer to refer the valuation to a Valuation Officer.

Can I combine Section 54 and Section 54EC on the same property sale?

Yes. You can buy a new house under Section 54 for part of the gain and invest up to Rs 50 lakh in 54EC bonds of NHAI, REC, PFC or IRFC within 6 months for the rest, as long as the total exemption does not exceed the gain. The 54EC bonds are locked in for 5 years and their interest is taxable.

How long must I hold a property for the gain to be long-term?

Land and buildings held for more than 24 months are long-term capital assets, a rule in place since FY 2017-18. For an under-construction flat, the holding period generally runs from the date of allotment, and for inherited or gifted property it includes the previous owner's holding period. Anything held for 24 months or less gives short-term gains taxed at slab rates.