Property Capital Gains Tax in India: Rules, Rates and Examples

Selling a property usually produces the largest single capital gain most Indian households will ever report. The tax depends on how long you held it, when you sold it, how much you invested, and whether you reinvest the gain. The rules changed significantly for sales on or after 23 July 2024, so older advice may no longer apply.

This guide explains the current framework for resident individuals, walks through a worked example, and covers the exemptions and reporting requirements that can materially reduce the tax.

Step 1: Determine the holding period

The holding period starts from the date you acquired the property and ends on the date of transfer. For immovable property, a holding period of more than 24 months makes the gain long-term. If you held the property for 24 months or less, the gain is short-term and taxed at your income-tax slab rate.

For inherited or gifted property, the holding period includes the previous owner's holding period. The cost of acquisition is generally the previous owner's cost, not the value on the date of inheritance. Keep the original purchase documents, inheritance records and improvement bills.

Step 2: Compute the sale consideration

Sale consideration is the amount you receive for the property. If the stamp duty value on the sale date is more than 110% of the actual consideration, the stamp duty value is generally treated as the sale consideration under Section 50C. This rule prevents under-reporting. The buyer may also face a tax issue under Section 56(2)(x) if the difference is large.

Deduct expenses incurred wholly and exclusively for the transfer, such as brokerage, legal fees and documentation charges. These reduce the capital gain but not the sale consideration.

Step 3: Determine the cost of acquisition

The cost of acquisition includes the purchase price and incidental costs such as stamp duty, registration charges and legal fees. The cost of improvement includes capital expenditure that increases the value of the property, such as construction or major renovation. Routine repairs and maintenance are not part of the cost of improvement.

• Original purchase agreement and registration documents.
• Stamp duty and registration receipts.
• Improvement bills and approvals.
• Brokerage and legal fees on purchase and sale.
• Inheritance or gift documents, if applicable.

Step 4: Apply the correct tax rate

For long-term property sales on or after 23 July 2024, the default is 12.5% without indexation. Indexation adjusts the purchase cost for inflation, which lowers the gain. The new regime removed indexation for property but reduced the rate from 20% to 12.5%.

Resident individuals and HUFs have an option for land or buildings acquired before 23 July 2024: pay 20% with indexation instead of 12.5% without it. The option must be exercised for the transfer and is subject to conditions. For many older properties with a low original cost, the 20% indexed route produces a lower tax bill; for recently purchased properties, 12.5% without indexation may be better. A chartered accountant can compute both.

The indexation figures are illustrative. The actual indexed cost depends on the Cost Inflation Index for the year of acquisition and the year of transfer. Surcharge may also apply at higher income levels. Use the property capital gains calculator to run your own numbers.

Short-term capital gains

If you sell within 24 months, the gain is short-term. Add it to your total income and tax it at your slab rate. The 12.5% rate and indexation do not apply. Short-term gains can push you into a higher slab, so estimate the tax before you sell.

Section 54: reinvest in a residential house

Section 54 gives an exemption on long-term capital gains from a residential property if you buy another residential house in India within one year before or two years after the sale, or construct one within three years. The exemption is limited to the capital gain or the cost of the new house, whichever is lower.

From FY 2023-24, the deduction under Section 54 is capped at ₹10 crore. If the gain exceeds ₹10 crore, the exemption is limited to ₹10 crore. You must not sell the new house within three years of purchase or construction, or the exemption is reversed.

Section 54F: reinvest the net consideration

Section 54F applies when you sell a long-term asset other than a residential house and invest the net consideration in a residential house. The exemption is proportionate to the amount invested. Conditions include not owning more than one residential house on the date of transfer and not buying another house within two years or constructing one within three years.

Section 54F is useful for land or commercial property sales, but the conditions are stricter than Section 54. Read the fine print or consult a tax professional before relying on it.

Section 54EC: invest in specified bonds

Section 54EC allows an exemption if you invest the long-term gain in bonds issued by NHAI or REC within six months of the transfer. The maximum investment is ₹50 lakh per financial year, and the bonds have a five-year lock-in. The exemption is limited to the amount invested or the gain, whichever is lower.

TDS on property purchases

The buyer must deduct TDS at 1% under Section 194-IA if the sale consideration is ₹50 lakh or more. The TDS is on the consideration, not on the gain. The buyer files Form 26QB and deposits the tax. The seller can claim the credit in their income-tax return.

If the seller is a non-resident, the buyer must deduct tax under Section 195 at the applicable rate, which may be higher and includes surcharge and cess. The seller can apply for a lower deduction certificate. This is a specialised area; involve a tax adviser early.

Advance tax and reporting

Capital gains tax is part of your income-tax liability and may require advance tax payments during the year. If the sale happens late in the financial year, check the instalment rules and pay the tax by 31 March to avoid interest. Report the sale in Schedule CG of your ITR, disclose the buyer's TAN, and reconcile it with Form 26AS and the Annual Information Statement.

Keep the sale deed, purchase deed, improvement bills, brokerage invoices, TDS certificate and reinvestment proof for at least eight years. If you claim an exemption, the assessing officer may ask for evidence of the investment and the timeline.

Common mistakes

• Using the stamp duty value as the sale price without checking the 110% rule.
• Forgetting to include stamp duty and registration in the cost of acquisition.
• Treating routine repairs as cost of improvement.
• Missing the 24-month holding period by a few days.
• Assuming indexation is still available automatically after July 2024.
• Reinvesting after the deadline and then claiming the exemption.
• Ignoring TDS credit and the buyer's reporting obligations.

Bottom line

Property capital gains tax depends on the holding period, the sale date, the cost records and your reinvestment plan. For sales after 23 July 2024, start with the 12.5% no-indexation computation, then check whether the 20% indexed option is better. If you plan to reinvest, confirm the Section 54, 54F or 54EC conditions before you sign the sale deed.