Capital Gains Tax on Property Sale 2026 — LTCG 12.5%, Section 54 Exemption

Selling a property in India triggers capital gains tax. The rules changed significantly from July 23, 2024 — indexation has been removed for most cases, and the LTCG rate is now 12.5%. Here is the complete guide for FY 2025-26.

Capital Gains Tax Rates on Property

Long-Term Capital Gains (LTCG)

Property held for more than 24 months qualifies as long-term.

For property sold after July 23, 2024:

• LTCG rate: 12.5% without indexation
• OR 20% with indexation (only for property purchased before July 23, 2024 — choose whichever is lower)

For property sold before July 23, 2024:

• LTCG rate: 20% with indexation

Short-Term Capital Gains (STCG)

Property held for 24 months or less qualifies as short-term.

• STCG is taxed at your income tax slab rate

Indexation — What Changed

Before July 23, 2024, you could use the Cost Inflation Index (CII) to inflate your purchase price, reducing your taxable gain. This was called indexation.

Example (old rule):

• Purchase price (2010): ₹30,00,000
• CII-adjusted cost (2025): ₹30,00,000 × (363/167) = ₹65,21,000
• Sale price: ₹80,00,000
• Taxable LTCG: ₹80L - ₹65.21L = ₹14,79,000
• Tax at 20%: ₹2,95,800

Example (new rule, same property):

• Purchase price: ₹30,00,000
• Sale price: ₹80,00,000
• Taxable LTCG: ₹80L - ₹30L = ₹50,00,000
• Tax at 12.5%: ₹6,25,000

The new rule results in higher tax for properties held for many years. However, for recently purchased properties, 12.5% without indexation may be lower than 20% with indexation.

The Choice for Pre-July 2024 Purchases

For property purchased before July 23, 2024 and sold after that date, you can choose:

• Option A: 12.5% on gain without indexation
• Option B: 20% on gain with indexation

Choose whichever results in lower tax. The IT portal allows you to compute both and select the better option.

How to Calculate Capital Gains on Property

Step 1: Determine the sale price Use the actual sale price or the stamp duty value (circle rate), whichever is higher. If the sale price is less than the stamp duty value, the stamp duty value is treated as the sale price.

Step 2: Calculate the cost of acquisition

• Actual purchase price
• Plus: Stamp duty and registration charges paid at purchase
• Plus: Improvement costs (renovation, construction)
• Less: Depreciation (if the property was used for business)

Step 3: Calculate the gain LTCG = Sale price - Cost of acquisition - Transfer costs

Transfer costs include brokerage, legal fees, and other selling expenses.

Step 4: Apply the applicable rate

• LTCG: 12.5% (or 20% with indexation if applicable)
• STCG: Slab rate

Section 54 — Exemption on Reinvestment

If you sell a residential property and reinvest the capital gains in another residential property, you can claim exemption under Section 54.

Conditions:

• The property sold must be a long-term capital asset (held 24+ months)
• You must purchase a new residential property within 1 year before or 2 years after the sale
• Or construct a new property within 3 years of the sale
• The new property must be in India
• You cannot sell the new property within 3 years of purchase

Exemption amount: The lower of:

• Capital gains from the sale
• Cost of the new property

Example:

• LTCG from sale: ₹50,00,000
• Cost of new property: ₹60,00,000
• Exemption: ₹50,00,000 (full LTCG exempt)

From Budget 2023: The maximum exemption under Section 54 is capped at ₹10 crore. Gains above ₹10 crore are taxable even if reinvested.

Section 54EC — Exemption via Bonds

If you do not want to buy another property, you can invest the capital gains in NHAI or REC bonds under Section 54EC.

Conditions:

• Investment must be made within 6 months of the sale
• Maximum investment: ₹50 lakh per financial year
• Lock-in period: 5 years
• Interest on bonds is taxable

Exemption: Up to ₹50 lakh of capital gains

Section 54F — Exemption for Non-Residential Assets

If you sell a non-residential asset (gold, commercial property, shares) and invest the entire sale proceeds in a residential property, you can claim exemption under Section 54F.

Conditions:

• You must not own more than one residential property (other than the new one) on the date of sale
• Purchase within 1 year before or 2 years after sale
• Construct within 3 years of sale

Exemption: Proportionate to the amount invested in the new property.

TDS on Property Sale

If you sell a property for ₹50 lakh or more, the buyer must deduct TDS at 1% under Section 194IA and deposit it with the government.

The buyer files Form 26QB and issues Form 16B to you. Claim this TDS credit in your ITR.

How to Report Property Sale in ITR

File ITR-2 (or ITR-3 if you have business income).

In Schedule CG:

• Section B2: LTCG on property (Section 112)
• Enter sale price, cost of acquisition, improvement costs, transfer costs
• Claim Section 54/54EC/54F exemption in the relevant sub-section

Frequently Asked Questions

Is indexation still available for property sold in FY 2025-26?

For property purchased before July 23, 2024 and sold after that date, you can choose between 12.5% without indexation or 20% with indexation. For property purchased after July 23, 2024, only 12.5% without indexation applies.

What if I sell property at a loss?

Long-term capital loss from property can be set off against other long-term capital gains. It can be carried forward for 8 years.

Do I need to pay advance tax on property sale?

Yes. If your capital gains result in a tax liability above ₹10,000, you must pay advance tax. Pay the full amount by March 15 of the financial year.

What is the stamp duty value and why does it matter?

The stamp duty value (circle rate) is the government's minimum valuation for property. If you sell below the circle rate, the circle rate is treated as the sale price for tax purposes. This prevents underreporting of property transactions.

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