Capital gains tax on the sale of property in India: rates, indexation and how to save it

Sell a house, a plot or a commercial unit in India and the profit is taxable as a capital gain. How much you pay turns on one thing above all: how long you held the property before selling. Get the holding period and the July 2024 rate change right, and the tax can be a fraction of what a rushed calculation suggests. This guide covers the rates that apply in 2026, how the gain is worked out with a real example, how inherited property is treated, and the three sections of the Income-tax Act that let you legally reduce or wipe out the tax.

Short-term or long-term: the 24-month line that sets your rate

For land and buildings, the dividing line is 24 months. Hold the property for more than 24 months before you sell and the gain is long-term; sell within 24 months and it is short-term. This is not a technicality. Long-term and short-term gains on property are taxed under completely different rules, and the long-term treatment is almost always the cheaper one.

The holding period runs from the date you acquired the property to the date of transfer. For an under-construction flat, the date of allotment is generally taken as the date of acquisition, not the date of the final sale deed. That can move a borderline sale from short-term to long-term, so the date on your allotment letter matters as much as the date on the registry.

The rates on a property sale in 2026

A short-term capital gain on property has no special rate. It is added to your total income and taxed at your applicable income-tax slab rate. For a seller in the 30 per cent bracket, a short-term gain is taxed at 30 per cent plus surcharge and cess. There is no indexation and no concessional rate for short-term property gains.

A long-term capital gain on property is taxed at 12.5 per cent, without indexation, plus applicable surcharge and a 4 per cent health and education cess. This flat rate applies to transfers made on or after 23 July 2024, under Section 112 of the Income-tax Act.

The 23 July 2024 change, and the indexation choice you may still have

Until 23 July 2024, long-term gains on property were taxed at 20 per cent with indexation: the cost was inflated by the cost inflation index before the gain was worked out. The Finance (No. 2) Act, 2024 replaced that with a flat 12.5 per cent and no indexation.

It left one important escape hatch. If you are a resident individual or a HUF and the property was acquired before 23 July 2024, you can choose whichever tax is lower: 12.5 per cent without indexation, or 20 per cent with indexation. For older property that has appreciated slowly, the 20 per cent-with-indexation route often produces the smaller bill. For recently bought property, the flat 12.5 per cent usually wins. You do not pick in advance; you compute both and pay the lower.

How the gain is calculated: a worked example

The gain is the sale consideration minus the cost of acquisition, the cost of improvement, and transfer expenses such as brokerage and legal fees. Where indexation applies, the cost of acquisition is adjusted using the cost inflation index (CII), which the CBDT notifies each year. The base year is 2001-02 with a CII of 100; for 2025-26 the CII is 376.

Indexed cost of acquisition = cost of acquisition multiplied by (CII of the year of sale divided by CII of the year of purchase, or 2001-02 whichever is later). Take a flat bought in FY 2010-11 for ₹40 lakh and sold in FY 2025-26 for ₹1.2 crore. The two routes give very different bills.

Here indexation cuts the tax by roughly 40 per cent. The result flips for property bought recently or held only a short time, where there is little inflation to index away. Run both numbers before you file, and keep the working.

Inherited or gifted property: how the gain is worked out

Receiving property by inheritance or as a gift is not itself taxable. Section 47 of the Income-tax Act keeps these transfers outside capital gains. The tax arises only when you later sell, and at that point two rules from the previous owner carry over to you.

• Cost of acquisition: you take the cost at which the previous owner acquired the property, not its value on the day you inherited it. If the property was bought before 1 April 2001, you may substitute the fair market value as on 1 April 2001 (not exceeding the stamp duty value on that date).
• Holding period: the previous owner's holding period is added to yours. An ancestral house you inherited last year, but which your family bought decades ago, is long-term in your hands and taxed at the long-term rate.

Because the original cost is often very low, the gain on inherited property can be large. The 1 April 2001 fair-market-value option and, for pre-2024 acquisitions, the indexation route are the two levers that bring it down.

Setting off and carrying forward a capital loss

If a sale produces a loss, it need not be wasted. A long-term capital loss can be set off only against long-term capital gains, in the same year or carried forward. A short-term capital loss is more flexible: it can be set off against either short-term or long-term gains. Unused losses carry forward for up to eight assessment years, but only if you file your return by the due date. A loss on a property held for over two years is a long-term loss, usable only against other long-term gains, whether from another property or from listed shares and mutual funds.

Section 54, 54F and 54EC: three legal ways to cut the tax

The Income-tax Act lets you defer or eliminate a long-term gain if you reinvest. Three sections matter for property sellers, and all three are for individuals and HUFs.

Section 54 exempts the gain when you sell a house and buy or build another. Section 54F is broader on what you sold, covering a plot of land, listed shares or jewellery, but stricter on reinvestment: you must put in the whole net sale consideration, not just the gain, and you cannot already own more than one house. Section 54EC suits sellers who do not want to buy another property; park up to ₹50 lakh of the gain in government-notified bonds and hold them for five years.

If you have not reinvested yet: the Capital Gains Account Scheme

The reinvestment windows run to two or three years, but your income-tax return is due much sooner, usually 31 July of the following year for individuals who do not need an audit. If you have not bought or built the new house by the return due date, you do not lose the exemption automatically. Deposit the unutilised gain (or the net consideration, for Section 54F) into a Capital Gains Account Scheme account at an authorised bank before the due date, and claim the exemption in that year's return.

What to file, and a final check

On most property sales the buyer has already deducted tax at source. For a resident seller, the buyer deducts 1 per cent of the consideration under Section 194IA when the price is ₹50 lakh or more. For an NRI seller, the buyer deducts at the long-term capital gains rate under Section 195, far above 1 per cent. This TDS is not your final tax; it is a credit. You report the gain in your return, compute the actual tax, and adjust the TDS against it, claiming a refund if too much was withheld. Report the sale in Schedule CG of ITR-2, or ITR-3 if you have business income, and keep the sale deed, purchase deed, improvement bills, brokerage invoices and the CII working ready.

1. Confirm the holding period. Over 24 months means the cheaper long-term rate.
2. If the property predates 23 July 2024, compute the tax both ways, 12.5% flat and 20% with indexation, and pay the lower.
3. Decide your exemption route, Section 54, 54F or 54EC, before you sell so the reinvestment timing works.
4. If you cannot reinvest before your ITR due date, open a Capital Gains Account Scheme account in time.
5. Match the TDS the buyer deducted against your final tax and claim any refund in your return.

SourceIncome Tax Department — Capital Gain (long-term rate of 12.5% without indexation, with the 20%-with-indexation option for land or building acquired before 23 July 2024)

SourceIncome Tax Department — Exemptions from Capital Gains (Sections 54, 54EC and 54F: reinvestment assets, time limits and caps)

SourceCBDT — Cost Inflation Index notified at 376 for FY 2025-26 (base year 2001-02 = 100)

SourcePropWatch — TDS on a property purchase (Section 194IA): Form 26QB and the NRI-seller trap

SourcePropWatch — TDS on an NRI property sale: Section 195, Form 27Q and lower-deduction certificates

SourcePropWatch — NRI property sale: repatriation rules and Form 15CA/15CB

SourcePropWatch — Stamp duty and registration charges in Bangalore (2026)