The 2024 Budget Changed the Rules — Here Is What Stands in 2026
India's capital gains tax rules for immovable property were significantly amended by the Union Budget 2024, effective from 23 July 2024. The key changes removed the indexation benefit for most sellers while simultaneously reducing the LTCG tax rate. Whether you are selling a property or buying one from a seller where TDS obligations arise, this guide explains exactly how the tax works in 2026 with worked examples and exemption strategies.
Short-Term vs Long-Term Capital Gains: The 24-Month Rule
The holding period that determines whether your gain is taxed as short-term or long-term is 24 months for immovable property — houses, flats, plots, and commercial spaces. This threshold was reduced from 36 months to 24 months by the Finance Act, 2017, and remains unchanged in 2026.
- Short-Term Capital Gain (STCG): Arises when you sell a property held for 24 months or less from the date of acquisition. The gain is simply added to your total income for the year and taxed at your applicable income tax slab rate — 5 percent, 20 percent, or 30 percent, plus applicable surcharge and 4 percent health and education cess.
- Long-Term Capital Gain (LTCG): Arises when you sell a property held for more than 24 months. From 23 July 2024, LTCG on immovable property is taxed at a flat 12.5 percent without indexation plus 4 percent cess. The earlier option of 20 percent with indexation has been removed for property transfers after this date for most taxpayers.
The Indexation Removal — What It Means in Practice
Indexation allowed you to inflate the original cost of acquisition by the government's Cost Inflation Index (CII) to account for inflation over the holding period, thereby reducing the taxable gain. This benefit has been removed for property sold after 23 July 2024.
The trade-off: a lower tax rate of 12.5 percent versus the old 20 percent. Whether this is better or worse for a given seller depends on the holding period and the actual inflation experienced:
- For properties held 5 to 10 years with moderate price appreciation, the lower 12.5 percent rate on a larger unadjusted gain often results in similar or lower actual tax compared to the old regime.
- For properties held 20 or more years with substantial inflation adjustments, the removal of indexation can significantly increase the actual tax outgo despite the lower rate — especially for properties in high-inflation periods like 2008 to 2014.
Important exception: Residents who owned property before 23 July 2024 and transfer it after that date may optionally use the old 20 percent with indexation route if it results in lower tax than 12.5 percent without indexation. This grandfathering provision is narrow and available only to resident individuals and HUFs, not to non-residents. Confirm with your CA for your specific situation.
Worked Calculation Example
Suppose you sell a flat in Hyderabad for ₹1.2 crore in April 2026. You bought it in March 2020 for ₹72 lakh and held it for over 24 months, making it LTCG.
- Sale consideration: ₹1,20,00,000
- Cost of acquisition: ₹72,00,000 (add stamp duty of ₹3.6 lakh paid at purchase = ₹75,60,000 as indexed cost)
- Brokerage paid on sale at 1 percent: ₹1,20,000 (deductible as cost of transfer)
- Net LTCG (without indexation): ₹1,20,00,000 minus ₹75,60,000 minus ₹1,20,000 = ₹43,20,000
- Tax at 12.5 percent: ₹5,40,000 plus 4 percent cess = ₹5,61,600
If the Section 54 exemption applies (see below), this tax liability could be entirely eliminated by reinvesting in a new residential property.
Section 54 — Reinvest in a New Residential Property
Section 54 of the Income Tax Act is the most commonly used capital gains exemption for property sellers. If you sell a residential property and reinvest the LTCG amount in another residential property, you can claim a full or proportionate exemption.
- The new property must be purchased within 1 year before or 2 years after the date of sale, or constructed within 3 years after the sale date
- The exemption applies to one property maximum. You cannot split the LTCG across two or more properties — unless the total LTCG is below ₹2 crore, in which case you may reinvest in two properties, but this once-in-a-lifetime option can be exercised only once
- The new property must be located in India — you cannot claim Section 54 by buying property abroad
- If you sell the new property within 3 years of purchase, the Section 54 exemption is reversed and the deferred gain becomes taxable in that year
- If the sale proceeds are not immediately available for reinvestment, you may deposit the unutilised amount in a Capital Gains Account Scheme (CGAS) with a scheduled bank before the due date of filing your ITR
Section 54EC — Capital Gains Bonds
If you do not wish to buy another property, Section 54EC allows you to invest the LTCG amount (up to ₹50 lakh per financial year) in specified long-term infrastructure bonds within 6 months of the sale. Eligible bonds in 2026 include NHAI (National Highways Authority of India) and REC (Rural Electrification Corporation) bonds, carrying a mandatory 5-year lock-in. Interest earned on these bonds is taxable as income, but the capital gain itself is fully exempt. Note the ₹50 lakh annual limit — if your LTCG exceeds this, the surplus is taxable at 12.5 percent.
Section 54F — Sale of a Non-Residential Asset
Section 54F applies when you sell a non-residential long-term capital asset — listed shares, gold, a commercial property, or any other capital asset other than a residential house — and reinvest the entire net sale consideration (not just the gain) into a new residential property. The conditions and timelines are similar to Section 54. The key difference is that for Section 54F, the exemption is proportional: if you reinvest only 60 percent of the net consideration, only 60 percent of the gain is exempt. You must not own more than one residential house (other than the new one) on the date of transfer of the original asset to claim this exemption.
TDS Implications: What the Buyer Must Do
Under Section 194-IA, when a resident individual or entity buys a property valued above ₹50 lakh, the buyer (not the seller) must deduct TDS at 1 percent of the total sale consideration at the time of payment. The buyer deposits this TDS online via Form 26QB on the Income Tax e-filing portal and then issues Form 16B to the seller as proof of TDS deduction. The seller claims this as a tax credit when filing their ITR.
For NRI sellers, the TDS obligation on the buyer is substantially higher under Section 195 — see our dedicated NRI property guide for details. Failure to deduct TDS under Section 194-IA makes the buyer liable to pay the tax plus interest at 1.5 percent per month plus potential penalty.
Brickplot's Take
Capital gains tax is one of the most frequently miscalculated aspects of a property sale in India. Many sellers in 2026 still assume indexation applies (it largely does not post-July 2024 for most situations) or forget to account for the TDS that the buyer is legally required to deduct. The practical implication: if you are selling a property and the buyer deducts TDS, do not forget to claim that credit in your ITR. And if you are buying, do not let the seller talk you out of the TDS deduction — the liability is yours. Brickplot's Financial Health scores for builder projects help NRI and resident buyers choose developers with strong delivery records, which indirectly keeps your tax clock from running longer than planned due to project delays.