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Capital Gains Tax for Property in India
Understand short-term and long-term property capital gains, applicable tax rates, eligible deductions, exemptions and ITR filing requirements under India's 2026 tax framework.
Sold a Property? Understand How Your Profit Is Taxed
Selling a house, flat, plot or commercial property can create a taxable capital gain. However, the tax is not always calculated simply on the difference between the purchase price and selling price.
The applicable holding period, purchase cost, eligible improvements, transfer expenses, stamp-duty value and exemptions can all affect the final capital-gains tax.
The difference is ₹25 lakh before considering other eligible costs, expenses and any applicable valuation adjustment. The actual taxable capital gain must be calculated separately.
This guide explains property capital-gains calculations, STCG and LTCG tax rates, exemptions, inherited-property rules, NRI transactions and ITR reporting. The type of capital gain depends partly on how long the property was held. If you sold land or a building within two years, read our detailed guide to tax on property sold within 24 months for the specific short-term capital-gains treatment.
Short-Term vs Long-Term Capital Gains on Property
How long you owned the property before selling decides which rules apply to you. This one factor changes your tax rate, your access to exemptions, and whether you get an inflation adjustment. It's worth getting right.
Here's the core rule in plain terms:
Short-term capital gain
You held the property for 24 months or less before selling.
Long-term capital gain
You held the property for more than 24 months before selling.
The 12.5% vs 20% Question, Answered Clearly
This is where most articles leave you more confused than before. Let's fix that. The rules shifted on 23 July 2024, and both the old and new treatments can still apply depending on when you bought.
LTCG is taxed at a flat 12.5% without indexation.
Resident individuals and Hindu Undivided Families (HUFs) get a choice. Pick whichever is cheaper: 12.5% without indexation or 20% with indexation. This grandfathering option protects long-time owners who benefit from inflation adjustment.
Short-term gains don't get a flat rate at all. They're added to your total income and taxed at your applicable slab rate.
| Type | Holding Period | Tax Rate | Indexation | Added to Slab Income? |
|---|---|---|---|---|
| STCG | 24 months or less | Your income slab rate | No | Yes |
| LTCG (bought on/after 23 Jul 2024) | More than 24 months | 12.5% flat | No | No |
| LTCG (bought before 23 Jul 2024) | More than 24 months | 12.5% without indexation or 20% with indexation (choose lower) | Optional | No |
How to Calculate Capital Gains on Property
Short-term capital gain formula
STCG = Full Value of Consideration − (Cost of Acquisition + Cost of Improvement + Transfer Expenses)
Long-term capital gain formula (if choosing the 20% indexation route)
LTCG = Full Value of Consideration − (Indexed Cost of Acquisition + Indexed Cost of Improvement + Transfer Expenses)
Long-term capital gain formula (12.5% flat route)
LTCG = Full Value of Consideration − (Cost of Acquisition + Cost of Improvement + Transfer Expenses)
What Each Part of the Formula Means
Let's define each piece so nothing feels fuzzy:
Worked Example: Comparing Both Routes
Meet Priya. She bought a flat in June 2015 for ₹30 lakh and sold it in August 2025 for ₹80 lakh. She paid ₹2 lakh in brokerage. Because she bought before 23 July 2024, she can compare both methods.
| Detail | 12.5% Without Indexation | 20% With Indexation |
|---|---|---|
| Sale price | ₹80,00,000 | ₹80,00,000 |
| Less: brokerage | ₹2,00,000 | ₹2,00,000 |
| Cost of acquisition | ₹30,00,000 | ₹30,00,000 (indexed to approx. ₹54,00,000) |
| Taxable LTCG | ₹48,00,000 | ₹24,00,000 |
| Tax rate | 12.5% | 20% |
| Tax payable | ₹6,00,000 | ₹4,80,000 |
Indexed cost is illustrative; use the official CII for the relevant years.
How to Save Capital Gains Tax on Property Sale
Selling a property at a profit does not always mean you must pay tax on the entire Long-Term Capital Gain (LTCG). The Income-tax Act provides specific exemptions if you reinvest in an eligible residential house or specified capital gains bonds. Here is how Section 54 ( Now Section 82 ), Section 54F ( Now Section 86 ) and Section 54EC ( Now Section 85 ) compare.
| Section | Applies To | Reinvestment | Time Limit | Exemption Limit |
|---|---|---|---|---|
| Section 82 Section 54 ( Now Section 82 ) | Eligible individuals and HUFs selling a qualifying long-term residential house. | Purchase or construct another residential house in India. | Purchase: 1 year before or 2 years after transfer. Construction: 3 years after transfer. | Lower of eligible LTCG or qualifying new-house cost. New-house cost considered is capped at ₹10 crore. |
| Section 86 Section 54F ( Now Section 86 ) | Eligible individuals and HUFs selling a qualifying long-term capital asset other than a residential house. | Purchase or construct one residential house in India. | Purchase: 1 year before or 2 years after transfer. Construction: 3 years after transfer. | Full or proportionate LTCG exemption based on net consideration. New-house cost considered is capped at ₹10 crore. |
| Section 85 Section 54EC ( Now Section 85 ) | Qualifying LTCG from land, building or both. | Invest eligible capital gains in specified bonds issued by eligible institutions. | Within 6 months after transfer. Qualifying bonds generally have a 5-year redemption period. | Up to ₹50 lakh of qualifying bond investment, subject to limits for the transfer year and subsequent tax year. |
1. Sell a House, Reinvest the Capital Gain
If you sell a qualifying long-term residential house, Section 82 may allow an individual or HUF to claim exemption by investing the eligible capital gain in another residential house in India.
For full exemption, qualifying investment generally needs to cover the eligible capital gain, subject to the ₹10 crore new-house cost cap.
A limited once-in-a-lifetime two-house option may also apply if the qualifying capital gain does not exceed ₹2 crore, subject to statutory conditions.
2. Reinvest Sale Proceeds in a Residential House
Sold qualifying long-term land, a commercial property or another capital asset that is not a residential house? Section 86 may allow you to claim a capital gains exemption by investing in one residential house in India.
Unlike Section 82, the exemption depends on net sale consideration, not just the capital gain. Full exemption generally requires qualifying investment equal to net consideration, subject to the ₹10 crore eligible-house-cost limit. Partial investment generally gives a proportionate exemption.
Understand the eligibility, formula, CGAS requirements and property ownership rules to save capital gains tax by reinvesting in a house .
3. Invest Capital Gains in Specified Bonds
Do not want to purchase another residential property? If your qualifying long-term capital gain arises from selling land, building or both, Section 85 provides a specified-bond investment option.
You must invest within 6 months of the transfer. The maximum qualifying investment is generally ₹50 lakh, subject to the combined transfer-year and subsequent-year restriction.
Eligible bonds include those issued by NHAI, REC and other government-notified issuers, subject to current eligibility. Qualifying bonds have a 5-year redemption period, and early transfer or specified encumbrances can trigger exemption withdrawal.
Important: Capital Gain and Sale Proceeds Are Different
Under Section 54 ( Now Section 82 ), eligible reinvestment is generally measured against the long-term capital gain. Under Section 54F ( Now Section 86 ), it is measured against net sale consideration. Under Section 54EC ( Now Section 85 ), eligible capital gains are invested in specified bonds, subject to the statutory investment limit. Where applicable, the Capital Gains Account Scheme (CGAS) may help preserve a qualifying house-reinvestment exemption if the prescribed investment is not yet completed by the relevant filing stage.
Sold a Property? Check Your Exemption Before Filing
A missed reinvestment deadline, incorrect LTCG calculation or CGAS deposit issue can affect your tax-saving claim. Get started with Easy Return to review your ITR filing options.
Official reference: Income-tax Act, 2025 — Sections 82, 85 and 86 . Exemption depends on the asset, taxpayer category, transaction date and applicable legal conditions.
Special Scenarios: Inherited, NRI & Jointly Owned Property
Capital gains tax rules can differ depending on how a property was acquired, the seller's residential status and whether the property has multiple owners. These situations may also involve different reporting and TDS requirements.
Inherited or Gifted Property
Property received through inheritance or a will is generally not taxed as income merely because it is inherited. Gifts require separate consideration: property received from specified relatives or on other qualifying exempt occasions may be tax-free, while certain other gifts can attract income tax when received.
When inherited or qualifying gifted property is subsequently sold, the capital gain is generally computed using the previous owner's eligible acquisition cost, subject to applicable adjustments and statutory valuation rules.
The previous owner's holding period is also generally included when determining whether the capital gain is short-term or long-term.
NRI Selling Property in India
A Non-Resident Indian selling property situated in India may have short-term or long-term capital gains, depending on the property's holding period and applicable law.
The major difference from a resident-seller transaction is often the buyer's TDS obligation. Section 195 (Now Section 393(2), Table Sl. No. 17) generally addresses applicable payments to non-residents.
The ordinary 1% property TDS provision for resident sellers does not automatically apply to payments made to non-resident sellers.
The actual deduction depends on the sum chargeable to tax, applicable rates in force and any valid certificate or tax determination.
Where eligible, the seller may apply for a lower or nil deduction certificate under Section 197 (Now Section 395(1)).
Overseas remittance of the sale proceeds is also subject to applicable FEMA and RBI requirements. For a detailed explanation, read our guide for an NRI selling property in India.
Jointly Owned Property
When two or more people legally own a property, the taxable capital gain is generally allocated according to each co-owner's genuine ownership interest, supported by the property deed, contribution records and other relevant facts.
Each co-owner normally reports their respective share of capital gains in their income-tax return, where applicable.
Eligible co-owners may independently evaluate capital-gains exemptions under Section 54 (Now Section 82), Section 54F (Now Section 86), or Section 54EC, subject to the conditions governing each exemption.
Merely adding a spouse or relative as a co-owner does not automatically create an additional tax exemption. Ownership must be genuine, and source-of-funds or clubbing provisions may also be relevant.
TDS Considerations When Buying Property from an NRI
Capital gains tax is an important consideration when selling property in India. However, if the property seller is a Non-Resident Indian (NRI), the buyer may also have specific Tax Deducted at Source (TDS) responsibilities.
The applicable TDS requirements depend on the seller's residential status under income-tax law, the amount chargeable to tax, relevant tax provisions, applicable rates and any valid lower or nil deduction certificate or tax determination.
Confirm whether the seller is resident or non-resident for income-tax purposes. Citizenship or the label "NRI" alone is not a sufficient tax-status test.
Verify the applicable deduction provisions, taxable amount, rates in force and any valid lower or nil deduction certificate before payment.
Check the applicable TAN requirements, deduction timing, tax deposit and prescribed TDS reporting obligations.
Maintain the relevant sale agreement, seller information, deduction records and certificates supporting the transaction.
If you are purchasing immovable property from a non-resident seller, read our detailed guide on TDS when buying property from an NRI to understand the buyer's TDS obligations, deduction requirements and compliance process.
ध्यान दें: NRI से प्रॉपर्टी खरीदते समय TDS के नियम resident seller से प्रॉपर्टी खरीदने के नियमों से अलग हो सकते हैं।
Before completing the transaction: Buyers should verify the applicable TDS rate, deduction timing, tax payment requirements and prescribed return filing obligations. Where necessary, obtain professional advice before releasing the consideration.
2026 tax-law note: The Income-tax Act, 2025 applies from 1 April 2026. Earlier tax years may be governed by the Income-tax Act, 1961. The actual capital-gains computation, available exemptions and TDS requirements depend on the transaction date, ownership documents, seller's residential status and applicable law.
Compliance: TDS Rules and ITR Filing
Getting the tax right is only half the battle. You also need to handle TDS at the time of sale and report everything correctly when you file. Follow this order carefully to steer clear of notices and penalties.
TDS on Sale of Property
Resident Seller
Section 194-IA: When a resident sells property for ₹50 lakh or more, the buyer must deduct 1% TDS on the sale value and deposit it using Form 26QB. The seller gets a Form 16B as proof.
NRI Seller
Section 195: For NRI sellers, TDS comes off at higher rates on the capital gain, not a flat 1%. Buyers dealing with NRI sellers need to be extra careful here, since the compliance load is heavier.
Which ITR Form to Use
Keep an eye on the filing due date for AY 2026-27 and file well ahead of the deadline to claim your refund quickly.
Documents You Need
- Sale deed and original purchase deed
- Receipts for cost of improvement
- TDS certificates (Form 16B / Form 26QB)
- Proof of CGAS deposits or 54EC bond investments, if claimed
Property ITR Filing
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Key Takeaways
If you remember only a few things from this guide, remember these.
Holding Period Decides STCG or LTCG
Property held more than 24 months = LTCG; 24 months or less = STCG.
24 Months Is the Key Cut-OffLTCG Has Two Possible Tax Routes
LTCG is taxed at 12.5% without indexation; property bought before 23 July 2024 may opt for 20% with indexation instead, whichever is lower.
Compare Both Before FilingSTCG Uses Your Income Slab
STCG is taxed at your applicable income slab rate.
No Flat STCG RateExemptions Can Reduce Your Tax
Save tax legally using Section 54, Section 54F, and Section 54EC.
Reinvestment Rules MatterTDS Rules Change for Resident and NRI Sellers
Buyers deduct 1% TDS on resident sales of ₹50 lakh or more under Section 194-IA; higher TDS under Section 195 applies to NRI sellers.
Check TDS Before CompletionUse the Correct ITR Form
Report your gains in ITR-2 (or ITR-3 with business income), applicable for FY 2025-26 / AY 2026-27.
Correct Form = Cleaner FilingFrequently Asked Questions
How much capital gains tax do I pay on selling property in India?
LTCG on property is taxed at 12.5% without indexation, or 20% with indexation for purchases made before 23 July 2024, whichever is lower. Short-term gains are added to your income and taxed at your slab rate.
What is the holding period for long-term capital gains on property?
A property held for more than 24 months qualifies as a long-term capital asset. If you sell within 24 months, the gain is short-term.
How can I save tax after selling a house?
Reinvest under Section 54 (buy a new house), Section 54F (put net sale proceeds into a house), or Section 54EC (invest up to ₹50 lakh in capital gains bonds within six months).
Is capital gains tax different for senior citizens?
The capital gains tax rate is the same for senior citizens, but they enjoy a higher basic exemption limit that can offset other income and reduce overall tax.
Do I still get indexation benefit on property?
Indexation is available only for land or buildings acquired before 23 July 2024, where you may choose the 20% with-indexation option if it results in lower tax.
What TDS applies when I sell property?
For resident sellers, buyers deduct 1% TDS under Section 194-IA on sales of ₹50 lakh or more. For NRI sellers, higher TDS applies under Section 195.
Which ITR form should I file for property capital gains?
Use ITR-2 if you have no business income, or ITR-3 if you do. Both let you report capital gains from property.
Is tax payable on inherited property?
No tax is due at the time of inheritance. Tax applies only when you sell the property, calculated using the original owner's cost and holding period.
CA Sagar Batra
ICAI Registered Chartered Accountant · 10+ Years of Professional Experience · 12,000+ Tax Filings
Chartered Accountant with experience in taxation, compliance and business advisory. His work covers Income Tax, GST, TDS, tax notices, business compliance and financial documentation for individuals and businesses across India.