Property Sale Tax in India: Capital Gains 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.

Looking for expert help with tax on sale of property India capital gains? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.

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 was introduced by the Finance Act 2024, replacing the earlier 36-month period. This means properties purchased as recently as two years before the sale date can qualify for the concessional LTCG rate.

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, the maximum surcharge 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 (CBDT Notification No. 70/2025 dated 1 July 2025).

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, Section 50C maps to Section 78 (Clause 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 stamp duty value, whichever is higher) exceeds Rs 50 lakh.

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 and deposit the TDS with the government within 30 days from the end of the month in which the deduction was made.
• Form 16B: After filing Form 26QB, the buyer issues Form 16B to the seller as a TDS certificate. 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 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 applicable capital gains rate: 12.5% (plus surcharge and cess) for LTCG or at applicable slab rates for STCG. 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 Section 54 exemption is reversed. The original capital gain becomes taxable in the year of sale of the new house.

Capital Gains Account Scheme (CGAS): If you have not completed the purchase or construction by the ITR filing due date (31 July for non-audit cases, 31 October for audit cases), 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 per financial year) 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 is proportionate to the amount invested.

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).

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: Rs 10 crore maximum exemption.

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 slab rates (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.

Frequently Asked Questions

I sold my property for Rs 40 lakh. Do I need to pay any tax?

If the sale consideration is below Rs 50 lakh, TDS under Section 194-IA does not apply. However, you must still compute capital gains and report the sale in your ITR. If the property was held for more than 24 months and the gains exceed the basic exemption limit, LTCG tax at 12.5% (or 20% with indexation for pre-July 2024 purchases) applies.

I bought property in 2015 and selling now. Should I choose 12.5% or 20% with indexation?

Compute both ways. For property bought in 2015, the indexed cost using CII will be significantly higher than the actual cost. If the indexation benefit is large enough, 20% on the reduced gain may result in lower tax than 12.5% on the full gain. The longer you held the property and the more it appreciated relative to inflation, the more likely 20% with indexation is beneficial.

I inherited property from my father. What is my cost of acquisition?

Your cost of acquisition is the cost at which the previous owner (your father or the original purchaser in the chain) acquired the property. If he bought it for Rs 5 lakh in 2005, your cost is Rs 5 lakh. Your holding period includes his holding period. See our detailed guide on capital gains on inherited property sale.

I am selling property and buying a new house. How do I claim Section 54 exemption?

Purchase the new residential house within 2 years of the sale date or construct one within 3 years. If you have not purchased or constructed by the ITR filing due date (July 31), deposit the capital gains amount in a Capital Gains Account Scheme (CGAS) at a designated bank and claim the exemption. Complete the purchase or construction within the deadline and withdraw from CGAS.

The buyer deducted TDS at 1% but I have no taxable gains after Section 54 exemption. How do I get the TDS back?

File your ITR, report the property sale in Schedule CG, claim the Section 54 exemption, and the TDS credit from Form 26AS will result in a refund. Alternatively, before the sale, apply for a nil/lower TDS certificate under Section 197 so the buyer deducts zero or reduced TDS.

I am an NRI selling property in India. What TDS rate applies?

For NRIs, TDS is deducted under Section 195 at 12.5% for LTCG (plus surcharge and cess) or at applicable slab rates for STCG. The 1% rate under Section 194-IA does not apply to NRI sellers. You can apply for a lower TDS certificate under Section 197 if you plan to claim exemptions.

Can I claim both Section 54 and Section 54EC exemptions on the same property sale?

Yes. You can invest up to Rs 50 lakh in Section 54EC bonds AND reinvest in a new residential house under Section 54. The total exemption across both sections cannot exceed the total capital gains amount.

---

This guide is based on Sections 45 to 55 of the Income Tax Act, 1961, the corresponding Sections 67 to 82 of the Income Tax Act, 2025, the Finance (No.2) Act 2024, Section 50C (mapped to Section 78/Clause 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 with your tax advisor before acting.