Capital Gains Tax on Property Sale in India 2026 — LTCG, STCG, Section 54/54EC/54F

1. What Counts as a Capital Gain on Property Sale

Capital gain on an immovable property sale is the difference between the net sale consideration and the indexed cost of acquisition plus indexed cost of improvement plus transfer expenses. The "sale consideration" is the actual price stated in the sale deed, subject to the Section 50C stamp duty rule discussed in section 9. "Cost of acquisition" includes the original purchase price plus stamp duty paid at the time of buying, registration charges, brokerage paid by the buyer, and any legal fees incurred to acquire title. "Cost of improvement" covers all capital expenditure incurred after acquisition — adding a floor, structural extensions, internal partitions that change the layout — but does not cover routine repairs, repainting, or maintenance. "Transfer expenses" are costs you incur to effect the sale itself: brokerage paid on sale, advocate fees for sale-deed drafting, statutory levies, and stamp duty paid by the seller (rare but possible). Document every component with receipts because the Assessing Officer can disallow unsupported additions during scrutiny.

2. LTCG vs STCG — The 24-Month Holding Period

For immovable property the long-term holding threshold was reduced from 36 months to 24 months by the Finance Act 2017, with effect from assessment year 2018-19. A property held for more than 24 months from the date of registration of the purchase deed qualifies as a long-term capital asset; anything held for 24 months or less is short-term. The date of acquisition is the date of registration of the sale deed in your name, not the date of booking or the date of allotment letter — though for under-construction property, the allotment letter date can be argued as the start date based on multiple ITAT rulings (notably the Bombay HC ruling in Yardi Prabhu). Short-term capital gain on immovable property is taxed at the seller's slab rate — there is no concessional rate, surcharge applies normally, and full slab income is added to other income for computing the marginal rate. There is no indexation benefit available for short-term gains. For inherited or gifted property, the holding period of the previous owner is included in your holding period under Section 49(1), which is why many inherited properties qualify as long-term from day one.

3. Indexation — The Finance Act 2024 Overhaul

Until 22 July 2024, LTCG on immovable property was uniformly taxed at 20% with indexation, where the cost of acquisition was inflated using the Cost Inflation Index (CII) notified annually by the CBDT. The Finance (No. 2) Act 2024 made two fundamental changes effective 23 July 2024: the LTCG rate on property was reduced from 20% to 12.5%, and the indexation benefit was removed for all transactions from that date onward. The formula was: Indexed Cost = Original Cost × (CII of year of sale ÷ CII of year of acquisition). For properties acquired before 23 July 2024 by resident individuals and HUFs, a grandfathering rule was introduced — taxpayers can compute tax under both regimes (12.5% without indexation OR 20% with indexation) and pay the lower of the two. This grandfathering is not available to companies, LLPs, or non-residents, who must use the 12.5% no-indexation regime regardless of acquisition date. The CII for FY 2024-25 is 363; for FY 2025-26 it is 376; the CBDT typically notifies the next year's CII in June of the prior financial year.

4. Section 54 — Reinvestment in Another Residential House

Section 54 exempts LTCG arising from the sale of a residential house if the gain is reinvested in another residential property in India. The new property must be purchased within 1 year before or 2 years after the sale date, or constructed within 3 years of the sale date. Only one new residential house can be claimed per Section 54 transaction by default, though Finance Act 2019 introduced a one-time option to split the reinvestment across two houses if the aggregate LTCG does not exceed ₹2 crore. The exempted amount is the lower of the LTCG or the amount actually invested in the new property — if you invest less than the gain, the unutilised portion is taxable. The new property must be held for at least 3 years after acquisition; if sold earlier, the exemption is reversed and the exempted gain becomes taxable as short-term capital gain in the year of resale. Finance Act 2023 introduced an overall cap of ₹10 crore per assessee per transaction — any reinvestment above ₹10 crore is ignored for exemption purposes. The exemption is available only to individuals and HUFs, not to companies or firms.

5. Section 54EC — Investment in Specified Bonds

Section 54EC allows LTCG from the sale of any long-term immovable property to be exempted by investing in specified bonds issued by NHAI, REC, PFC, or IRFC. The investment must be made within 6 months from the date of sale, the lock-in period is 5 years (extended from 3 years by Finance Act 2018), and the maximum investment qualifying for exemption is ₹50 lakh per financial year per assessee — even if the LTCG is higher. The ₹50 lakh limit was clarified by Finance Act 2018 to apply across the year of sale and the following year combined, closing a popular split-tranche workaround. The bonds carry a taxable annual interest rate of approximately 5.25% (the rate is revised periodically and is currently below most fixed deposit rates), and the interest is added to your income at slab rates. Section 54EC is most useful when you do not want to reinvest in property and the LTCG is below ₹50 lakh — for larger gains, a combination of Section 54/54F plus Section 54EC may be needed. The bonds cannot be pledged, mortgaged, or transferred during the lock-in; doing so reverses the exemption.

6. Section 54F — Selling a Non-Residential Asset and Buying a Home

Section 54F applies when you sell any long-term capital asset other than a residential house — typically a commercial property, plot of land, gold, listed shares (subject to STT exemption rules), or jewellery — and reinvest the net consideration in one residential property in India. Unlike Section 54 which exempts only the gain, Section 54F exemption is proportional: Exempt Amount = LTCG × (Amount Invested in New House ÷ Net Sale Consideration). To claim full exemption, you must reinvest the entire net consideration (not just the gain) in the new residential property. The reinvestment window is the same as Section 54 — 1 year before or 2 years after for purchase, 3 years for construction. A key restriction: at the date of sale, you must not own more than one residential house other than the new one being purchased, and you cannot purchase a second residential house within 2 years or construct one within 3 years of the original sale. The 3-year lock-in on the new house applies; selling it earlier reverses the exemption. Finance Act 2023 extended the ₹10 crore aggregate cap to Section 54F as well.

7. Capital Gains Account Scheme (CGAS) — Parking Funds Before Reinvestment

If the reinvestment window (2 years for purchase, 3 years for construction) extends beyond the income-tax return filing due date for the year of sale, you must park the unutilised LTCG in a Capital Gains Account before the due date — otherwise the exemption is lost even if you eventually reinvest. The CGAS was notified in 1988 and is operated by all 28 authorised banks including SBI, Bank of Baroda, Canara Bank, and most public sector banks. Two account types exist: Type A is a savings-style account with normal liquidity for purchases, and Type B is a term-deposit-style account for longer holding periods, typically tied to construction timelines. Withdrawals require the bank to verify the use of funds against eligible purchase or construction expenditure; partial withdrawals are permitted. If the funds remain unutilised at the end of the statutory window, the unutilised balance is taxable as LTCG of the year in which the window expires, and the bank releases funds only after the Assessing Officer issues a Form G certificate. Always retain bank deposit slips, construction expenditure invoices, and Form A (initial deposit) for documentation.

8. NRI Seller Rules — Section 195 TDS, LDC, Repatriation

When an NRI sells immovable property in India, the buyer is required to deduct TDS under Section 195 — not the more familiar 1% under Section 194-IA that applies to resident-to-resident transactions. The rate is 20% on LTCG and 30% on STCG, plus applicable surcharge (10%/15%/25%/37% depending on income slab) and 4% health and education cess. The critical practical issue: in the absence of a Lower Deduction Certificate (LDC), the buyer typically deducts TDS on the gross sale consideration rather than on the gain, which can lock up 20%+ of the sale value. The NRI seller should apply for a Section 197 LDC via Form 13 on the TRACES portal at least 30–45 days before the registration date, supplying cost-of-acquisition proof, capital gain working, and PAN. The Assessing Officer issues a certificate fixing TDS at the actual computed gain. Repatriation of sale proceeds out of the NRO account requires Form 15CA and a CA-certified Form 15CB confirming taxes paid; up to USD 1 million per financial year can be repatriated. Inherited property has additional documentation requirements including the original owner's cost-of-acquisition records and probate.

9. Section 50C — Stamp Duty Value vs Actual Consideration

Section 50C overrides the actual sale consideration with the stamp duty valuation (the circle rate or guideline value) if the stamp value exceeds the actual consideration. The deemed consideration is then used to compute LTCG regardless of what you actually received. A safe harbour introduced by Finance Act 2018 and expanded by Finance Act 2020 allows the actual consideration to be used if the difference between stamp value and actual consideration is within 10% — beyond 10%, the stamp value applies. The buyer faces a parallel rule under Section 56(2)(x) — if they pay less than 110% of stamp value, the difference is taxed as "income from other sources" in their hands. Where the seller disputes the stamp value as unrealistic, they can request the Assessing Officer to refer the matter to the District Valuation Officer (DVO) under Section 50C(2); the DVO valuation is binding if lower than the stamp value but not if higher. Practical impact: in markets where circle rates have not been updated in years (most metros) the rule rarely bites, but in cities where state governments revised guideline values aggressively (Bangalore in 2023, parts of Maharashtra in 2024), Section 50C now triggers on a significant share of below-circle-rate transactions.

10. Rate Summary — Holding Period × Tax Treatment

The quick-reference matrix below combines the holding-period rule, the post–Finance Act 2024 rate regime, the indexation option, and the TDS the buyer must deduct. Surcharge (10%/15%/25%/37%) and 4% health & education cess apply on top of the base rate.

Source: Income-tax Act 1961, Finance (No. 2) Act 2024, CBDT circulars. Verify the latest CII and surcharge rates on incometax.gov.in before filing.

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