Capital gains tax when you sell property: a seller's walkthrough

Key points

• Property held for more than 24 months gives a long-term gain; 24 months or less gives a short-term gain taxed at your slab rate.
• Long-term gains on sales from 23 July 2024 are taxed at 12.5% without indexation.
• A resident individual or HUF selling land or a building acquired before 23 July 2024 pays the lower of 12.5% without indexation and 20% with it.
• Reinvesting in a house (section 54 or 54F) or in specified bonds (54EC) within the deadlines can reduce the tax to nil.
• The Income-tax Act, 2025 applies to sales from 1 April 2026, with new section numbers; earlier sales use the 1961 Act.

The short answer

When you sell property for more than it cost you, the profit is a capital gain, and this is how to calculate capital gains on property step by step. If you held the property for more than 24 months, it is long-term, and for a sale on or after 23 July 2024 it is taxed at 12.5 per cent without indexation, plus surcharge where your income is high enough and 4 per cent health and education cess. If you held it for 24 months or less, the gain is short-term and is added to your income and taxed at your slab rates.

There is one important exception for older property. A resident individual or Hindu undivided family (HUF) selling land or a building acquired before 23 July 2024 can work out the tax both ways, 12.5 per cent without indexation and 20 per cent with indexation, and pay the lower. Non-residents, companies and firms do not get this choice.

A long-term gain can often be reduced to nil by reinvesting in a residential house or in specified bonds within fixed deadlines. This walkthrough takes you through the steps in order; the linked guides on long-term gains, short-term gains and exemptions have the detailed rules and worked examples.

Which Act applies: the Income-tax Act, 2025 has governed income from 1 April 2026 (tax year 2026-27). A sale made before that date is dealt with under the Income-tax Act, 1961. Where both section numbers are well established, this guide gives both. This is general information, not tax advice. Tax law, rates and forms change with each Finance Act, and the Income-tax Act, 2025 renumbered most sections from 1 April 2026. Confirm how the rules apply to your own sale with a chartered accountant before you agree a date, sign or file.

Step 1: is your gain long-term or short-term?

Count from the date you acquired the property to the date you transfer it. For land and buildings, including flats, more than 24 months makes the gain long-term. The definition is in section 2(101) of the 2025 Act (section 2(42A) of the 1961 Act).

For a resale flat, the date of acquisition is normally the date the sale deed was registered in your name. For a flat bought under construction from a builder, the start date has been argued in many cases; tribunals and courts have often accepted the allotment or agreement date where the buyer acquired rights and paid under it. If you are close to the 24-month line, ask a chartered accountant to look at your papers before you fix the sale date. For inherited or gifted property, the previous owner's holding period is added to yours.

The difference can be large. A short-term gain for someone in the top slab is taxed at 30 per cent plus surcharge and cess, and cannot be sheltered by buying another house. Waiting a few weeks to cross 24 months can change the tax substantially.

Step 2: work out the gain

Start with the full value of consideration: the sale price in the deed, or the stamp duty value if that is more than 110 per cent of the price (section 78 of the 2025 Act; section 50C of the 1961 Act).

Subtract the expenses of the sale itself, such as brokerage and the legal fees for the sale. Then subtract the cost of acquisition, which includes the stamp duty, registration fee and brokerage you paid when you bought, and the cost of any improvement, meaning capital additions such as an extra room, not routine repairs or painting. For property acquired before 1 April 2001, you may use its fair market value on that date as the cost, capped at its stamp duty value on that date.

Keep one file with the purchase deed, every payment receipt, the bills for improvements and the sale deed. If you cannot prove a cost, you cannot deduct it.

Step 3: apply the rate, and check whether indexation helps

For a long-term gain, the general rate is 12.5 per cent on the gain worked out without indexation. This came from the Finance (No. 2) Act, 2024 for transfers on or after 23 July 2024, and is now in section 197 of the 2025 Act (section 112 of the 1961 Act).

Indexation has not disappeared for everyone. If you are a resident individual or HUF and the land or building was acquired before 23 July 2024, compute the tax a second way: index the cost using the Cost Inflation Index (CII) notified by the Central Board of Direct Taxes, and apply 20 per cent to the smaller gain. You pay whichever tax is lower. The CBDT has notified a CII of 384 for 2026-27; the base year is 2001-02 with an index of 100.

As a rough rule, a property whose value has grown at roughly the pace of inflation usually does better under the indexed option, and one that has multiplied in value many times usually does better at 12.5 per cent. Work out both every time; the long-term gains guide has worked examples of each outcome.

For a short-term gain there is no special rate and no indexation: the gain is added to your other income and taxed at your slab rates.

Illustrative example

Assumed round numbers only. A resident bought a flat in 2010-11 (CII 167) for ₹40 lakh including stamp duty and registration, and sells it in 2026-27 (CII 384) for ₹1.2 crore, paying ₹1.2 lakh brokerage. The stamp duty value is within 110 per cent of the price.

Without indexation: gain = ₹1,18,80,000 − ₹40,00,000 = ₹78,80,000; tax at 12.5 per cent = ₹9,85,000. With indexation: indexed cost = ₹40,00,000 × 384 ÷ 167 = about ₹91,97,605; gain = about ₹26,82,395; tax at 20 per cent = about ₹5,36,479. The seller pays the lower figure, plus cess, unless she reinvests and claims an exemption. The tax rules for the year of your sale, and your own figures, decide the real answer.

Step 4: see whether an exemption applies

Only long-term gains can be exempted this way. The three main routes, with their new section numbers: section 54 (section 82 of the 2025 Act), when you sell a residential house and buy another within one year before or two years after the sale, or build one within three years; section 54F (section 86), when you sell any other long-term asset, such as a plot, and invest the net sale consideration in a residential house, subject to owning no more than one other house; and section 54EC (section 85), when you invest up to ₹50 lakh of the gain in specified bonds within six months of the sale, locked in for five years.

Investment above ₹10 crore in the new house is not counted for sections 54 and 54F. If you have not bought or built by the time your return is due, deposit the unused amount in a Capital Gains Account Scheme account at an authorised bank before the due date, or you lose the exemption for that amount. The exemptions guide sets out every condition.

Step 5: TDS, advance tax and your return

If you are a resident and the price is ₹50 lakh or more, the buyer deducts 1 per cent TDS and deposits it; the threshold is tested on the whole property where there are several buyers or sellers. Check that the deduction appears in your annual tax statement (Form 26AS or the Annual Information Statement) under your PAN; it is credited against your final tax. If you are a non-resident, the buyer deducts on the gain at the rates for non-residents, which is usually much more; you can apply to the Income Tax Department for a certificate of lower deduction before the sale.

A capital gain is income of the year of the sale, so advance tax is due on it. If the sale happens mid-year, pay the tax due in the next advance tax instalment to avoid interest. Report the sale in your return (most individuals without business income use ITR-2), with the sale and purchase details, the stamp duty value, the cost and any exemption claimed.

A long-term capital loss on property can be set off only against long-term gains, and can be carried forward for up to eight years if the return is filed on time. A short-term capital loss can be set off against either kind of gain.

Joint owners, inherited property and NRIs

Joint owners: each co-owner is taxed on his or her own share of the gain, according to the share each actually owns and paid for, and each can claim exemptions separately. The joint property guide explains how shares are worked out.

Inherited or gifted property: receiving it is not taxed, but when you sell, the previous owner's cost and holding period carry over to you. If the previous owner acquired it before 1 April 2001, the 2001 value can be used. See the guide on selling inherited or gifted property.

Non-resident sellers: the same gains rules apply, without the indexed option for property acquired before 23 July 2024. The buyer's TDS is higher, and repatriating the proceeds has its own rules under the Foreign Exchange Management Act and RBI directions. Ask a chartered accountant who deals with NRI cases.

Common mistakes

Selling a few weeks before 24 months are complete.

Assuming indexation is gone for everyone; residents selling property acquired before 23 July 2024 can still choose it.

Applying the ₹1.25 lakh exemption for listed shares and equity funds to a property gain; it does not apply to land or buildings.

Leaving the stamp duty and registration paid at purchase out of the cost.

Missing the deadline to deposit unspent money in a Capital Gains Account Scheme account before filing.

Using 1961 Act section numbers for a sale made from 1 April 2026, or the reverse.

Common questions

Sources

• Income-tax Act, 2025 (applies from 1 April 2026): section 2(101), section 72, section 73, section 78, section 82, section 85, section 86 and section 197, Income Tax Department (incometaxindia.gov.in); checked 9 October 2026
• Income-tax Act, 1961, sections 2(42A), 48, 49, 50C, 54, 54EC, 54F, 112 and 194-IA as amended by the Finance (No. 2) Act, 2024 (12.5 per cent rate and the 23 July 2024 option for resident individuals and HUFs), indiacode.nic.in; checked 9 October 2026
• Memorandum explaining the provisions of the Finance (No. 2) Bill, 2024, indiabudget.gov.in (rationalisation of capital gains); checked 9 October 2026
• Central Board of Direct Taxes notification of the Cost Inflation Index for 2026-27 (384), as set out in this site's long-term capital gains guide
• Income Tax Department e-filing portal (incometax.gov.in): return forms, Annual Information Statement and advance tax dates; checked 9 October 2026
• Capital Gains Accounts Scheme, 1988 (Ministry of Finance)

Last checked 2026-10-09.