The short answer
If you sell land, a building, a flat or a house that you held for more than 24 months, the profit is a long-term capital gain. For a transfer on or after 23 July 2024 the tax is 12.5% of the gain, worked out without indexation, plus surcharge where your income is high enough and 4% health and education cess.
There is one important exception. A resident individual or a Hindu undivided family (HUF) selling land or a building acquired before 23 July 2024 can have the tax computed both ways — 12.5% without indexation, and 20% with indexation — and pays whichever is lower. Non-residents, companies and firms do not get this choice.
The gain itself is: the sale price (or the stamp duty value, if that is more than 110% of the price), minus the costs of selling, minus what you paid to acquire the property, minus what you spent improving it. For property bought before 1 April 2001 you may use its fair market value on that date as the cost. For inherited or gifted property, the previous owner's cost and holding period carry over to you.
The rate is in section 197 of the Income-tax Act, 2025 for tax year 2026-27 onwards; for transfers before 1 April 2026 it was section 112 of the Income-tax Act, 1961, as amended by the Finance (No. 2) Act, 2024. The reinvestment exemptions that can reduce the tax to nil are covered in a separate guide on sections 54, 54EC and 54F.
A note on section numbers: the Income-tax Act, 2025 has applied from 1 April 2026 (the start of tax year 2026-27). Anything that happened before that date — a sale, a rent payment, a deduction — is governed by the Income-tax Act, 1961 and its section numbers. This guide gives both numbers where the new one has been confirmed.
Is your gain long-term? The 24-month rule
Land and buildings (including a flat, which is a building with an undivided share of land) become long-term capital assets once held for more than 24 months immediately before the transfer. Held for 24 months or less, the gain is short-term and taxed at your slab rates; see the separate guide on short-term gains.
In the 2025 Act the definition of a short-term capital asset is in section 2(101), which keeps the 24-month period for land and buildings and the 12-month period for listed securities. In the 1961 Act it was section 2(42A).
When does the clock start? For a resale flat, normally the date the sale deed is registered in your name. For an under-construction flat bought from a builder, the question of whether the clock starts on the allotment letter or the agreement, or only on possession and registration, has been argued in many cases; tribunals and courts have often accepted the allotment or agreement date when the buyer acquired rights and paid under it. If your timing is close to the 24-month line, have a chartered accountant look at your documents.
For property you inherited or received as a gift, the period for which the previous owner held it is added to your own period. A flat your father bought in 1998 and you inherited in 2025 is a long-term asset even if you sell it in 2026.
The rate: 12.5% without indexation, or 20% with it
The Finance (No. 2) Act, 2024 changed the rate on long-term gains for transfers on or after 23 July 2024. Before that date, gains on land and buildings were taxed at 20% after indexation. From that date, the general rule is 12.5% without indexation.
The relief for older property: where the seller is a resident individual or HUF and the land or building was acquired before 23 July 2024, the tax at 12.5% without indexation is compared with the tax at 20% computed on the indexed gain. If the 12.5% figure is higher, the excess is ignored. In plain terms, you pay the lower of the two. This is now in section 197 of the 2025 Act and was in the proviso added to section 112 of the 1961 Act.
Which is lower depends mainly on how fast the property rose in value compared with inflation. A property that has roughly kept pace with the Cost Inflation Index will usually do better under the indexed option. A property that has multiplied in value many times — for example, a house bought in the early 2000s in a fast-growing suburb — will usually do better at 12.5% without indexation. Work out both every time; the examples below show each outcome.
For a property acquired on or after 23 July 2024, and for any non-resident seller, only the 12.5% rate without indexation is available.
The Cost Inflation Index
Indexation increases your purchase cost to account for inflation, using the Cost Inflation Index (CII) notified each year by the Central Board of Direct Taxes. Indexed cost = actual cost × CII of the year of sale ÷ CII of the year of purchase (or of 2001-02, if you use the 1 April 2001 value as the cost). Improvement costs are indexed in the same way from the year they were incurred.
The base year is 2001-02, with an index of 100. Selected values: 2005-06: 117; 2010-11: 167; 2014-15: 240; 2016-17: 264; 2018-19: 280; 2019-20: 289; 2021-22: 317; 2023-24: 348; 2024-25: 363; 2025-26: 376. For 2026-27 the CBDT has notified 384.
Use the index of the financial year (now 'tax year') in which you bought, not the calendar year. A flat registered in February 2011 falls in 2010-11 (index 167); one registered in May 2011 falls in 2011-12.
Building up the gain, line by line
1. Full value of consideration: the sale price in the deed. If the stamp duty value (the circle rate, ready reckoner or guidance value adopted for stamp duty) is more than 110% of that price, the stamp duty value is used instead. This is section 78 of the 2025 Act (section 50C of the 1961 Act). Where the price was fixed in an earlier agreement and part was paid by a non-cash mode on or before that date, the stamp duty value on the agreement date may be used.
2. Less: expenses wholly and exclusively for the transfer — brokerage, legal fees for the sale, advertisement costs. Stamp duty on a sale is normally paid by the buyer, so it is not your expense as seller.
3. Less: cost of acquisition — the purchase price plus the stamp duty, registration fee and brokerage you paid when you bought. For an under-construction flat, the instalments paid to the builder, including GST charged on them, generally form part of the cost; keep the receipts.
4. Less: cost of improvement — capital spending that added to the property, such as an extra room or a major structural renovation, not routine repairs or painting. Improvements made before 1 April 2001 are ignored.
Under the indexed option, lines 3 and 4 are indexed; under the 12.5% option they are taken at actual cost. The mode of computation is in section 72 of the 2025 Act (section 48 of the 1961 Act).
Interest on a home loan is not added to the cost if you have already claimed it as a deduction against income from house property. Keep a single file with the purchase deed, every payment receipt, the improvement bills and the sale deed; you will need all of it.
Property bought before 1 April 2001
For a capital asset acquired before 1 April 2001, you may take its fair market value on 1 April 2001 as the cost of acquisition instead of the original price. For land and buildings, that fair market value cannot exceed the stamp duty value of the property on 1 April 2001, a cap introduced by the Finance Act, 2020. This option is in section 55 of the 1961 Act, and the 2025 Act carries the rule forward.
Get a registered valuer's report for the 1 April 2001 value, and check it against the stamp duty value for that date (the sub-registrar's or state's valuation tables for 2001). When you use the 2001 value, index it from 2001-02 (CII 100) if you choose the indexed option.
This matters most for inherited property, where the original purchase price from decades ago is often tiny or impossible to prove.
Worked example 1: the indexed option wins
Illustrative numbers only. A resident individual bought a flat in 2010-11 (CII 167) for ₹40,00,000 including stamp duty and registration. In 2018-19 (CII 280) she spent ₹5,00,000 adding a room. She sells in 2026-27 (CII 384) for ₹1,20,00,000 and pays brokerage of ₹1,20,000. The stamp duty value is within 110% of the price, so the price is used.
Net sale consideration: ₹1,20,00,000 − ₹1,20,000 = ₹1,18,80,000.
Option A, 12.5% without indexation: gain = ₹1,18,80,000 − ₹40,00,000 − ₹5,00,000 = ₹73,80,000. Tax = 12.5% × ₹73,80,000 = ₹9,22,500.
Option B, 20% with indexation: indexed cost of acquisition = ₹40,00,000 × 384 ÷ 167 = ₹91,97,605. Indexed improvement = ₹5,00,000 × 384 ÷ 280 = ₹6,85,714. Gain = ₹1,18,80,000 − ₹91,97,605 − ₹6,85,714 = ₹19,96,681. Tax = 20% × ₹19,96,681 = ₹3,99,336.
She pays the lower figure, ₹3,99,336, plus 4% cess of ₹15,973, a total of ₹4,15,309 (assuming her total income does not attract surcharge). The 12.5% option would have cost about ₹5.2 lakh more before cess.
Worked example 2: the 12.5% option wins
Illustrative numbers only. A resident individual bought a plot in 2005-06 (CII 117) for ₹10,00,000 all-in. He sells it in 2026-27 for ₹1,50,00,000, with no selling expenses to keep the arithmetic simple.
Option A, 12.5% without indexation: gain = ₹1,50,00,000 − ₹10,00,000 = ₹1,40,00,000. Tax = ₹17,50,000.
Option B, 20% with indexation: indexed cost = ₹10,00,000 × 384 ÷ 117 = ₹32,82,051. Gain = ₹1,50,00,000 − ₹32,82,051 = ₹1,17,17,949. Tax = ₹23,43,590.
Option A is lower by ₹5,93,590. Because the plot rose far faster than the index, removing indexation and lowering the rate helps him.
Surcharge: his total income including the gain is above ₹1 crore, so surcharge applies. On long-term gains taxed at this special rate, surcharge is capped at 15%. Tax ₹17,50,000 + 15% surcharge ₹2,62,500 = ₹20,12,500; plus 4% cess ₹80,500 = ₹20,93,000. (Marginal relief can reduce surcharge for incomes just above a threshold; the example ignores it.)
Worked example 3: a property acquired after 23 July 2024
Illustrative numbers only. A resident buys a flat in September 2024 for ₹75,00,000 all-in and sells it in November 2026 — more than 24 months later — for ₹90,00,000, paying ₹90,000 brokerage.
Because the flat was acquired on or after 23 July 2024, there is no indexed option. Gain = ₹90,00,000 − ₹90,000 − ₹75,00,000 = ₹14,10,000. Tax = 12.5% × ₹14,10,000 = ₹1,76,250, plus 4% cess of ₹7,050 = ₹1,83,300.
Had the sale happened one month earlier, before 24 months were complete, the whole ₹14,10,000 would have been a short-term gain taxed at slab rates — for someone in the 30% bracket, far more. Check the dates before you sign.
Surcharge, cess and the basic exemption limit
Surcharge is added to the tax when total income crosses ₹50 lakh (10%), ₹1 crore (15%), and higher levels under the old regime. On long-term capital gains taxed at the special rate, surcharge is capped at 15%, a cap introduced by the Finance Act, 2022. Health and education cess at 4% is then charged on the tax plus surcharge.
If your other income is below the basic exemption limit, the 1961 Act let a resident individual or HUF use the unused part of that limit against long-term gains taxed at the special rate. If your income is low in the year of sale — for example, a retired seller — ask your chartered accountant how this applies in your year and regime.
The rebate that brings tax to nil for incomes up to ₹12 lakh in the new regime does not extend to long-term gains taxed at a special rate. Do not assume a long-term gain is tax-free just because your total income is under ₹12 lakh.
The ₹1.25 lakh exemption does not apply to property
You will read that 'long-term capital gains up to ₹1.25 lakh are tax-free'. That exemption applies only to long-term gains on listed equity shares, equity-oriented mutual fund units and business trust units on which securities transaction tax is paid (section 198 of the 2025 Act, earlier section 112A of the 1961 Act). It does not apply to land, buildings or flats. A gain of ₹1,00,000 on a flat is taxable in full.
When the stamp duty value is higher than your price
If you sell below the circle rate, the stamp duty value can become your sale price for tax. The tolerance is 10%: if the stamp duty value does not exceed 110% of the actual price, the actual price stands.
Illustrative example: you agree ₹90,00,000; the stamp duty value is ₹98,00,000. 110% of ₹90,00,000 is ₹99,00,000. The stamp duty value is within the tolerance, so ₹90,00,000 is used. If the stamp duty value were ₹1,00,00,000, it would exceed ₹99,00,000, and your gain would be computed on ₹1,00,00,000.
If you think the stamp duty value is above the true market value (for example, because the property has defects or a dispute), you can ask the assessing officer to refer the valuation to a valuation officer. Raise this in your return or in assessment; do not ignore the gap.
The buyer has a matching problem: receiving property for less than its stamp duty value can be taxed in the buyer's hands too. See the guide on inherited and gifted property for that rule.
Inherited property in brief
Inheriting a property is not taxed. When you sell it, the cost is what the previous owner paid (or the 1 April 2001 value, if the previous owner acquired it before then), and the previous owner's holding period is added to yours, so the gain is almost always long-term. This is section 73 of the 2025 Act (section 49 of the 1961 Act).
Indexation, where available, is a point to check: courts have held that the index can be taken from the year the previous owner acquired the asset, and where the 2001 value is used the index runs from 2001-02. The full rules, with an example, are in the guide on selling inherited or gifted property.
Paying the tax and reporting the sale
Capital gains are reported in your return of income for the tax year of the sale (ITR-2 for most individuals without business income). Advance tax is due on capital gains once they arise; if the sale happens mid-year, pay the tax due in the next advance tax instalment to avoid interest. Interest for a shortfall in advance tax on capital gains is not charged for instalments that fell due before the gain arose, provided you pay in the remaining instalments.
If the buyer deducted 1% TDS (resident seller, price ₹50 lakh or more), that amount appears in your annual tax statement and is credited against your tax. The buyer's duty is explained in the guide on TDS on a property purchase. If you are a non-resident, the buyer deducts on the gain instead; see the guide on TDS when buying from an NRI.
Common mistakes
Counting the holding period from the wrong date, and selling a few weeks before 24 months are up.
Assuming indexation has gone completely. For resident individuals and HUFs selling property acquired before 23 July 2024, the indexed 20% option still exists, and it is often the cheaper one.
Applying the ₹1.25 lakh exemption meant for listed shares and equity funds to a flat.
Leaving out stamp duty, registration and brokerage from the cost of acquisition — they are part of it.
Treating repairs and repainting as cost of improvement. Only capital additions count.
Ignoring the stamp duty value when the agreed price is well below the circle rate.
Forgetting that the 2001 fair market value for land and buildings is capped at the stamp duty value on that date.
Using 1961 Act section numbers for a sale made on or after 1 April 2026, or new section numbers for an earlier sale. The return form for each year uses the law that applied that year.
This is general information, not tax or legal advice. Tax law, rates and forms change with each Finance Act; confirm how the rules apply to your own facts with a chartered accountant before you sign, pay or file.
Common questions
What is the LTCG tax rate on property sold in 2026?
12.5% of the gain without indexation, plus surcharge (capped at 15%) where applicable and 4% cess. A resident individual or HUF selling land or a building acquired before 23 July 2024 can instead pay 20% with indexation if that is lower.
Is indexation still available on property?
Only for resident individuals and HUFs, and only on land or buildings acquired before 23 July 2024. They pay the lower of 12.5% without indexation and 20% with indexation. Everyone else uses 12.5% without indexation.
What is the Cost Inflation Index for 2026-27?
384, as notified by the CBDT. It was 376 for 2025-26 and 363 for 2024-25. The base year is 2001-02, with an index of 100.
How long must I hold a flat for the gain to be long-term?
More than 24 months immediately before the sale. For inherited or gifted property, the previous owner's holding period counts too.
Does the ₹1.25 lakh LTCG exemption apply to a house sale?
No. It applies only to listed equity shares, equity-oriented mutual funds and business trust units. A long-term gain on land or a building is taxable from the first rupee.
What if I sell below the circle rate?
If the stamp duty value is more than 110% of your price, the stamp duty value is taken as the sale price for capital gains (section 78 of the 2025 Act, earlier section 50C). Within that 10% tolerance, your actual price is used.
Can I use the 1 April 2001 value for my father's old house?
Yes, if the property was acquired before 1 April 2001 (by you or by the previous owner, for an inherited house). The fair market value on that date cannot exceed the stamp duty value on that date. Keep a registered valuer's report.
Can I avoid LTCG tax on property altogether?
Often, yes, by reinvesting in a residential house or in specified bonds within the time limits. See the guide on sections 54, 54EC and 54F (sections 82, 85 and 86 of the 2025 Act).
Sources
- Income-tax Act, 2025 (as amended by the Finance Act, 2026), incometaxindia.gov.in: section 197 (tax on long-term capital gains), section 72 (mode of computation), section 73 (cost with reference to certain modes of acquisition), section 78 (stamp duty value), section 2(101) (short-term capital asset), section 198 (₹1.25 lakh equity exemption); checked 2 October 2026
- Income-tax Act, 1961, indiacode.nic.in: sections 2(42A), 48, 49, 50C, 55, 112 and 112A as amended by the Finance (No. 2) Act, 2024 — the 12.5% rate and the 23 July 2024 grandfathering for resident individuals and HUFs; checked 2 October 2026
- Budget 2024-25 (July 2024), Memorandum explaining the provisions of the Finance (No. 2) Bill, 2024, indiabudget.gov.in — rationalisation of capital gains rates; checked 2 October 2026
- CBDT notification fixing the Cost Inflation Index at 384 for tax year 2026-27 (July 2026), and Notification No. 70/2025 fixing 376 for 2025-26; checked 2 October 2026
- Finance Act, 2022 — surcharge on long-term capital gains capped at 15%; Finance Act, 2020 — fair market value on 1 April 2001 capped at stamp duty value; checked 2 October 2026
- Income Tax Department e-filing portal (incometax.gov.in) for return forms and advance tax dates
Last checked 2026-10-02.