Income tax return (ITR)

Capital Gains Tax on Sale of Property: Rates and Ways to Save

CA AnkurPublished 24 Apr 2026 · Updated 12 Nov 2026 · 6 min read

✓ 6 official and published sources✓ Written for Indian sellers and small businesses

Capital gains tax on sale of property depends on how long you owned it. Sell a house, flat or plot after more than 24 months and the gain is long-term, taxed at 12.5% without indexation. Sell within 24 months and the gain is added to your income and taxed at your slab rate. Reinvesting can reduce the tax.

Key points

Long-term means held for more than 24 months. The rate is 12.5% without indexation for sales on or after 23 July 2024.
Resident individuals and HUFs who acquired the property before 23 July 2024 can pay 20% with indexation instead, if that tax is lower.
Sections 54, 54EC and 54F of the 1961 Act reduce or remove the tax if you reinvest within the time allowed.
Budget 2026 did not change these rates for tax year 2026-27.
The buyer usually deducts 1% TDS. You claim it as credit in your return.

In this guide

Short-term or long-term?
What is indexation, and do you still get it?
How do you work out the gain?
A worked example
Ways to save the tax
What about tax year 2026-27?
The mistake people usually make
Should you do this yourself?

Short-term or long-term?

Count the months from the date you acquired the property to the date you transferred it. For land and buildings the line is 24 months.

Held for	Type of gain	Tax for a sale in FY 2025-26
24 months or less	Short-term	Added to your income, taxed at your slab rate
More than 24 months, property acquired before 23 July 2024, seller is a resident individual or HUF	Long-term	The lower of 12.5% without indexation and 20% with indexation
More than 24 months, any other case	Long-term	12.5% without indexation

A 4% cess is added to the tax, and a surcharge applies at higher incomes. Sales made up to 22 July 2024 were taxed at 20% with indexation. That old rule matters only for returns of FY 2024-25 and earlier.

What is indexation, and do you still get it?

Indexation raises your purchase cost for inflation, using the Cost Inflation Index (CII) that the government notifies each year. A higher cost means a smaller gain.

The July 2024 budget removed indexation and cut the rate from 20% to 12.5%. After objections, a choice was given to resident individuals and HUFs for land or buildings acquired before 23 July 2024. You work out the tax both ways and pay the lower figure. Non-residents and companies do not get this choice. Property bought on or after 23 July 2024 gets only 12.5%.

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How do you work out the gain?

Take the sale price. If the stamp duty value is much higher than the price in the deed, the stamp duty value can be taken instead under section 50C.
Subtract selling costs such as brokerage and legal fees.
Subtract what you paid for the property, including stamp duty and registration, and the cost of any improvements.
For a property acquired before 23 July 2024, repeat step 3 with indexed cost and compare the two tax figures.
Subtract any exemption you qualify for under sections 54, 54EC or 54F.

A worked example

Arjun bought a flat in June 2015 for Rs 40,00,000. He sold it in October 2025 for Rs 95,00,000 and paid Rs 95,000 as brokerage. Net sale value: Rs 94,05,000.

Option A, 12.5% without indexation. Gain is Rs 94,05,000 less Rs 40,00,000, which is Rs 54,05,000. Tax at 12.5% is Rs 6,75,625.

Option B, 20% with indexation. The CII for 2015-16 is 254 and for 2025-26 it is 376. Indexed cost is Rs 40,00,000 x 376 / 254, which is Rs 59,21,260. Gain is Rs 34,83,740. Tax at 20% is Rs 6,96,748.

Option A is lower. Arjun pays Rs 6,75,625 plus 4% cess of Rs 27,025, a total of Rs 7,02,650. The buyer would have deducted 1% of Rs 95,00,000, that is Rs 95,000, which Arjun sets against this tax.

Now suppose Arjun buys another flat for Rs 60,00,000 in March 2026. The whole gain of Rs 54,05,000 has gone into a new house, so section 54 can make it exempt and the tax falls to nil.

Ways to save the tax

All three apply to long-term gains only. Section numbers are from the Income-tax Act, 1961, which governs FY 2025-26.

Section	You sold	You must	Limit
54	A residential house	Buy one house in India within 1 year before or 2 years after the sale, or build one within 3 years	Exemption up to the gain invested, capped at Rs 10 crore
54EC	Land or building	Invest the gain in notified bonds, such as NHAI or REC, within 6 months	Rs 50 lakh, locked in for 5 years
54F	Any other long-term asset, such as a plot	Invest the net sale price in one residential house, in the same time as section 54	Capped at Rs 10 crore. Not available if you own more than one other house

Have you not bought the new house by the time your return is due? Deposit the unused amount in a Capital Gains Account Scheme account with a bank before the due date. Otherwise the exemption is lost for that year.

What about tax year 2026-27?

Sales from 1 April 2026 fall under the Income-tax Act, 2025. Budget 2026 kept the 24-month period, the 12.5% rate and the choice for property acquired before 23 July 2024. The CII for 2026-27 is 384. Section numbers have changed in the new Act, so forms for 2026-27 will not say 54 or 112. The budget also proposed a simpler TDS route for residents who buy from a non-resident.

The mistake people usually make

They assume the new house can be bought any time. The windows in section 54 are counted from the date of sale, and the 6 months for bonds is strict. The second mistake is missing the Capital Gains Account Scheme deposit. The third is ignoring the 1% TDS: check that it shows in your AIS and Form 26AS. The fourth is filing ITR-1. A property sale needs ITR-2, or ITR-3 if you have business income. See which ITR form to file.

Should you do this yourself?

A single sale with clear papers is manageable. Take help for inherited or gifted property, joint owners, property bought before 2001, a sale by a non-resident, or a stamp duty value above the sale price.

Sources

How AprilTax can help

AprilTax offers income tax return filing by a Tax Expert at a fixed fee, starting from Rs 1,499, done fully online. Share your sale deed, purchase deed and Form 26AS, and the Tax Expert compares both tax options, checks which exemption fits and reports the sale in the right schedule. See income tax return filing.

Frequently asked questions

What is the capital gains tax rate on sale of property?

For a sale on or after 23 July 2024, a long-term gain on land or a building is taxed at 12.5% without indexation. A resident individual or HUF who acquired the property before 23 July 2024 can instead pay 20% with indexation if that works out lower. A short-term gain is taxed at your slab rate. Cess of 4% is added.

How long must I hold a property for the gain to be long-term?

More than 24 months. If you sell a house, flat or plot within 24 months of acquiring it, the gain is short-term and is added to your other income.

Can I still use indexation on property?

Only in one case. If you are a resident individual or HUF and you acquired the land or building before 23 July 2024, you can compute tax at 20% with indexation and at 12.5% without it, and pay the lower amount. For property acquired on or after 23 July 2024 there is no indexation.

How can I save capital gains tax on a house sale?

Under section 54 of the 1961 Act you can buy another residential house in India within one year before or two years after the sale, or build one within three years. Under section 54EC you can invest up to Rs 50 lakh of the gain in notified bonds within six months. Both apply only to long-term gains.

What if I have not bought the new house before filing my return?

Deposit the unused gain in a Capital Gains Account Scheme account with a bank before the due date of the return, and use it within the section 54 time limits. If the money is not used in time, the unused part becomes taxable later.

Does the buyer deduct TDS when I sell property?

Usually yes. When the sale value is Rs 50 lakh or more, the buyer deducts 1% TDS and deposits it against your PAN. You claim it as credit in your return. Where the seller is a non-resident, different and higher TDS rules apply.

Which ITR form do I use after selling property?

ITR-2, if you have no business or professional income. If you do, use ITR-3. ITR-1 and ITR-4 cannot be used to report a property sale.

Did Budget 2026 change the tax on property sales?

No change in the rate or the holding period. For tax year 2026-27 the long-term rate stays at 12.5%, with the 20% with indexation choice for resident individuals and HUFs on property acquired before 23 July 2024. The section numbers are different under the Income-tax Act, 2025.

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CA Ankur

A Chartered Accountant on the AprilTax team who works with online sellers and small businesses every filing season.

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