Capital Gains Tax on Sale of Property in India: Rates, Calculation and Exemptions
Selling a house, flat, plot or commercial property may result in taxable capital gains. This guide explains when the gain is taxable, the applicable rates, available reinvestment relief and practical compliance steps for property sales in 2026.
1. What is capital gains tax on property?
A capital asset generally includes land, a building, a residential flat and other immovable property held as an investment. A transfer generally includes a sale and certain other transactions covered by the statute. The gain is broadly the taxable sale consideration less qualifying transfer expenses, acquisition cost and improvement cost, subject to deeming provisions and exemptions. Under the 1961 Act, the principal provisions were sections 2(14), 2(47), 45 and 48. The computation provision under the 2025 Act is section 72.
Rural agricultural land meeting the statutory location tests is generally outside the definition of a capital asset. Property held as trading stock may instead generate business income.
2. Short-term and long-term property gains
For immovable property, a holding period of more than 24 months generally makes the gain long-term; property held for 24 months or less generally produces short-term gains. Special acquisition rules can apply to inherited or gifted property, including counting an earlier owner's holding period in qualifying cases.
| Type | Holding period | General tax treatment |
|---|---|---|
| Short-term capital gain | 24 months or less | Added to taxable income and taxed at applicable slab or entity rates |
| Long-term capital gain | More than 24 months | Generally 12.5% without indexation for transfers on or after 23 July 2024, subject to relief below |
3. What is the capital gains tax rate in 2026?
For a typical long-term sale of land or building on or after 23 July 2024, the general rate is 12.5% without indexation, plus applicable surcharge and health and education cess. Resident individuals and Hindu undivided families selling land or buildings acquired before 23 July 2024 have a special grandfathering protection: the tax is limited so it does not exceed the amount computed under the earlier 20% with indexation method. This is a comparative tax protection, not a general restoration of indexation for every seller or asset.
Short-term property gains are generally taxed at normal applicable rates. The seller's residential status, acquisition date, transfer date and any special provisions can materially affect the result.
4. How is capital gain calculated?
The basic computation starts with the full value of consideration, which may be substituted by stamp-duty value where statutory conditions apply. Deduct eligible transfer expenses and the permitted acquisition and improvement costs. Apply any eligible exemption to arrive at taxable capital gain.
Where the property was acquired before 1 April 2001, special fair-market-value rules may apply. Preserve purchase documents, registration charges, improvement invoices, broker bills and valuation records. Do not automatically treat outstanding home-loan principal as a deductible cost.
5. How can capital gains tax be saved legally?
Residential house reinvestment - section 54 under the 1961 Act
Eligible individuals and HUFs selling a long-term residential house can generally claim relief by purchasing another qualifying residential house in India within one year before or two years after transfer, or constructing one within three years after transfer. The exemption is subject to statutory conditions and a Rs. 10 crore investment ceiling. A limited once-in-a-lifetime option for two houses may apply when the gain does not exceed Rs. 2 crore.
Sale of other long-term assets - section 54F under the 1961 Act
For eligible sales of long-term capital assets other than residential houses, reinvestment in a residential house may qualify for relief. Unlike section 54, the amount of net sale consideration invested is important, and restrictions on ownership of other residential houses apply.
Specified capital gains bonds - section 54EC under the 1961 Act
Qualifying long-term gains from land or buildings may be invested in specified notified bonds within six months, generally subject to a Rs. 50 lakh ceiling and prescribed lock-in conditions.
Capital Gains Account Scheme
If eligible reinvestment is not completed by the relevant return-filing deadline, deposit of the required unutilised amount into the prescribed Capital Gains Account Scheme may preserve the claim, subject to strict deadlines and subsequent use requirements. The Income Tax Department has clarified how earlier deposits and exemptions are treated after the commencement of the 2025 Act.
6. TDS on property sales and ITR reporting
For many purchases of immovable property from a resident seller, section 194-IA of the 1961 Act required the buyer to deduct TDS at 1% when the relevant consideration or stamp-duty value threshold of Rs. 50 lakh was met, subject to exclusions and detailed rules. Different provisions apply to non-resident sellers, including section 195 under the 1961 Act. For 2026 transactions, check the corresponding 2025 Act provisions and current forms before payment.
TDS is a tax credit, not the final capital gains tax. Report the transfer in the applicable income tax return, reconcile AIS/Form 26AS and TDS certificates, and claim exemptions with supporting records. An NRI sale may require a lower-deduction certificate where applicable.
7. Common mistakes to avoid
- Assuming tax is payable on the entire sale price instead of the taxable gain.
- Claiming indexation without checking the acquisition date and eligibility for grandfathering.
- Ignoring stamp-duty valuation adjustments and safe-harbour rules.
- Missing section 54, 54F, 54EC or Capital Gains Account Scheme deadlines.
- Applying resident-seller TDS rules to a non-resident seller.
- Failing to retain purchase, improvement and reinvestment evidence.
8. Frequently asked questions
Is capital gains tax payable on every sale of a house?
No. Tax depends on whether a taxable gain arises and whether a statutory exclusion or exemption applies.
Can I pay 20% with indexation instead of 12.5%?
Qualifying resident individuals and HUFs selling land or buildings acquired before 23 July 2024 can benefit from a grandfathering comparison that prevents higher tax than under the earlier indexed method.
Does buying another property eliminate capital gains tax?
Not automatically. The type of asset sold, timing, amount reinvested, property ownership and statutory conditions determine the relief.
Is TDS of 1% the entire tax on the property sale?
No. TDS is generally a credit against the seller's final tax liability.
Conclusion
The tax on a property sale depends on the holding period, acquisition date, actual taxable gain, residential status and reinvestment decisions. Before signing the sale deed, compare the permitted tax computations, check TDS obligations and plan exemption deadlines. For complex cases involving inherited property, joint ownership, redevelopment or non-resident sellers, obtain transaction-specific advice.
Last updated: 13 November 2026. General legal information; verify applicable law and notifications for the transaction date.