Selling a property in India triggers capital gains tax. The tax depends on how long you held the property (short-term vs long-term), the sale price, and the cost of acquisition. This guide covers the complete capital gains tax on property sale for FY 2026-27.
Short-Term vs Long-Term Capital Gains
| Feature | Short-Term (STCG) | Long-Term (LTCG) |
|---|---|---|
| Holding period | Less than 24 months | 24 months or more |
| Tax rate | Slab rates (up to 30%) | 12.5% (with indexation) or 20% (without indexation) |
| Indexation benefit | ❌ Not available | ✅ Available (Cost Inflation Index) |
| Exemptions available | Limited | 54, 54B, 54EC, 54F |
Budget 2024 Change
From FY 2024-25, LTCG on property is taxed at 12.5% without indexation or 20% with indexation, whichever is lower. This replaced the earlier flat 20% with indexation. You can choose whichever option benefits you.
How to Calculate Capital Gains
Short-Term Capital Gains (STCG)
STCG = Sale Price − Cost of Acquisition − Cost of Improvement − Selling Expenses
Tax = STCG × Applicable slab rate (up to 30% + cess)
Long-Term Capital Gains (LTCG)
LTCG = Sale Price − Indexed Cost of Acquisition − Indexed Cost of Improvement − Selling Expenses
Indexed Cost = Actual Cost × (CII of year of sale / CII of year of purchase)
Capital Gains Tax Example
| Component | Amount |
|---|---|
| Property purchased in 2010 | ₹25,00,000 |
| Property sold in 2026 | ₹80,00,000 |
| Cost of improvement (2015) | ₹5,00,000 |
| Selling expenses (broker, legal) | ₹1,50,000 |
| CII 2010-11: 167 | CII 2015-16: 254 | CII 2026-27: 376 |
With Indexation (20% rate):
- Indexed cost of acquisition = ₹25,00,000 × (376/167) = ₹56,28,742
- Indexed cost of improvement = ₹5,00,000 × (376/254) = ₹7,40,157
- LTCG = ₹80,00,000 − ₹56,28,742 − ₹7,40,157 − ₹1,50,000 = ₹14,81,101
- Tax @ 20% = ₹2,96,220
Without Indexation (12.5% rate):
- LTCG = ₹80,00,000 − ₹25,00,000 − ₹5,00,000 − ₹1,50,000 = ₹48,50,000
- Tax @ 12.5% = ₹6,06,250
Winner: With indexation (lower tax of ₹2,96,220 vs ₹6,06,250)
Note: Compare both options. For long holding periods, indexation usually gives better results. For recent purchases, 12.5% without indexation may be better.
Calculate Your Capital Gains Tax
Use our free capital gains calculator to compare both options and find the lowest tax.
Capital Gains Calculator →How to Save Capital Gains Tax
Section 54: Reinvest in Residential Property
- Buy a new residential property within 1 year before or 2 years after sale
- Or construct a new house within 3 years from sale date
- Exemption: Full LTCG amount (up to cost of new property)
- If new property cost is less than LTCG, only partial exemption
Section 54EC: Invest in Capital Gains Bonds
- Invest in NHAI or REC bonds within 6 months of sale
- Maximum investment: ₹50,00,000 per financial year
- Lock-in: 5 years (3 years for bonds issued before April 2023)
- Interest: 5.25-5.75% (taxable)
Section 54F: Reinvest in Residential Property (Non-Property Assets)
- Applicable when selling shares, gold, or other capital assets
- Invest entire sale proceeds in a residential house
- Exemption: Proportional to amount invested
Section 54B: Agricultural Land
- Applicable if you sell agricultural land used for farming
- Invest in another agricultural land within 2 years
- Exemption: Full LTCG amount
Tax Planning Strategy
If your LTCG is ₹40 lakh and you invest in a new house worth ₹40 lakh under Section 54, you pay zero capital gains tax. This is the most powerful tax-saving tool for property sellers. Plan BEFORE selling — once the sale happens, you have limited time to reinvest.
TDS on Property Sale (Section 194-IA)
| Condition | Rate | Due Date |
|---|---|---|
| Property value > ₹50 lakh | 1% of sale price | Within 30 days of deduction (Form 26QB) |
| Seller is NRI | Slab rates / DTAA | Within 7 days of deduction (Form 27Q) |
Note: TDS is on the sale price, not on the capital gain. If sale price is ₹80 lakh, TDS = ₹80,000 (1%). The seller can claim credit in ITR.
Common Mistakes in Capital Gains Calculation
- Not using indexation: For properties held 10+ years, indexation dramatically reduces tax.
- Missing improvement costs: Renovation, construction, and improvement costs can be indexed and deducted.
- Not claiming selling expenses: Brokerage, legal fees, stamp duty on sale are deductible.
- Forgetting Section 54: Many sellers don't know they can avoid ALL tax by reinvesting.
- Not filing TDS credit: TDS deducted on property sale must be claimed in ITR. Form 26AS shows the credit.