Capital Gains Tax on Sale of Property in India: 12.5% or 20% with Indexation, Worked Examples and How to Save It

Selling a house, flat or plot usually produces the largest single taxable gain most families will ever report. The tax on it is not hard to compute, but it turns on four questions, in this order: how long you held the property, when you bought it, what the stamp-duty value was, and what you do with the money afterwards.

This guide works through each, with numbers. It applies to resident individuals and HUFs selling in FY 2025-26 (the return due in 2026) and tax year 2026-27 (sales from 1 April 2026). Where the law sits in different sections under the old and new Acts, both are given.

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Step 1: Short-term or long-term

Land and buildings are long-term if held for more than 24 months before the sale. Otherwise the gain is short-term.

Holding period	Type	How it is taxed
24 months or less	Short-term	Added to your income and taxed at your slab rate
More than 24 months	Long-term	Special rate — 12.5%, or the 20%-with-indexation alternative below

The holding period runs from the date you acquired the property — usually the date of the registered purchase deed, or the allotment date for a builder flat — to the date of transfer.

Step 2: 12.5% — or 20% with indexation, if you bought before 23 July 2024

Since 23 July 2024, long-term gains on property are taxed at 12.5% without indexation. Before that date the rate was 20% with indexation — the purchase price increased by the Cost Inflation Index (CII) to account for inflation.

For resident individuals and HUFs selling land or a building acquired before 23 July 2024, the law lets you compute the tax both ways and pay the lower. The 12.5% tax is computed; if it exceeds the tax at 20% on the indexed gain, the excess is ignored.

Who	Property acquired	Rate
Resident individual or HUF	Before 23 July 2024	Lower of 12.5% (no indexation) and 20% (with indexation)
Resident individual or HUF	On or after 23 July 2024	12.5%, no indexation
Non-resident, company, firm	Any date	12.5%, no indexation

Surcharge, if your income is high enough, is capped at 15% on long-term capital gains; health and education cess of 4% applies on top.

The Cost Inflation Index you need: 376 for FY 2025-26 and 384 for tax year 2026-27. The index for the year of purchase comes from the same notified series (2001-02 = 100). For property bought before 1 April 2001, the cost is the fair market value on 1 April 2001, capped at its stamp-duty value on that date.

Unused basic exemption. A resident individual whose other income is below the basic exemption limit can set the shortfall against the long-term gain before the 12.5% applies.

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Three worked examples

All three are resident individuals selling in FY 2025-26. Tax is shown before surcharge and 4% cess.

Example 1 — a flat bought in 2012: indexation wins

Bought in FY 2012-13 for ₹40 lakh (CII 200). Sold in November 2025 for ₹1.10 crore; stamp-duty value ₹1.05 crore; brokerage ₹1 lakh.

	12.5%, no indexation	20% with indexation
Sale price	₹1,10,00,000	₹1,10,00,000
Less: brokerage	₹1,00,000	₹1,00,000
Less: cost	₹40,00,000	₹75,20,000 (₹40 lakh × 376 ÷ 200)
Long-term gain	₹69,00,000	₹33,80,000
Tax	₹8,62,500	₹6,76,000

The indexed computation saves about ₹1.87 lakh. This is the usual result for property held ten years or more with ordinary appreciation.

Example 2 — a plot bought cheap in 2005: 12.5% wins

Bought in FY 2005-06 for ₹10 lakh (CII 117). Sold for ₹80 lakh in FY 2025-26.

	12.5%, no indexation	20% with indexation
Sale price	₹80,00,000	₹80,00,000
Less: cost	₹10,00,000	₹32,13,675 (₹10 lakh × 376 ÷ 117)
Long-term gain	₹70,00,000	₹47,86,325
Tax	₹8,75,000	₹9,57,265

Here 12.5% is about ₹82,000 cheaper. When a property has multiplied many times over, the lower rate outweighs the indexation. Do not assume indexation always wins — compute both. In rough terms, with CII 376 the 12.5% route is cheaper once the sale price is more than about 3.4 times the cost for a 2012 purchase, or about 6.9 times for a 2005 purchase.

Example 3 — the same flat, held under 24 months

Had the flat in Example 1 been bought for ₹95 lakh in January 2024 and sold for ₹1.10 crore in November 2025 — 22 months later — the ₹14 lakh gain (after brokerage) is short-term and is simply added to your income at your slab rate. At the 30% slab, that is ₹4.2 lakh. Had the sale waited until after the 24-month mark, the gain would have been long-term: ₹1.75 lakh at 12.5%, or about ₹1.27 lakh on the indexed route (CII 348 for FY 2023-24), since the flat was bought before 23 July 2024. On a rising property, the holding date is worth checking before you sign.

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Step 3: Stamp-duty value — when the deed price is not the price

If you sell land or a building for less than its stamp-duty value (the government’s circle or collector rate), the stamp-duty value is treated as the sale price for capital gains — Section 50C (Section 78 of the 2025 Act). Two reliefs apply:

• 10% tolerance. If the stamp-duty value does not exceed 110% of the actual price, the actual price is used.
• Agreement date. Where the price was fixed by an earlier agreement, and part of the price was paid by banking or online mode on or before that date, the stamp-duty value on the agreement date can be used instead of the registration date.

If you believe the circle rate exceeds the market value, you can ask the Assessing Officer to refer the valuation to a Valuation Officer. The buyer faces the mirror rule: buying below stamp-duty value by more than 10% is taxed as their income.

For how this works with Punjab collector rates and agricultural land, see our Punjab property-sale guide.

Step 4: What you can deduct

• Cost of acquisition — the purchase price plus stamp duty, registration and brokerage you paid when buying
• Cost of improvement — construction, extension or structural work, with bills (indexed too, under the 20% route; improvement before 1 April 2001 is ignored)
• Transfer expenses — brokerage, legal fees and advertisement on the sale

Not deductible: interest you already claimed under house property, routine repairs, maintenance and society charges.

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Step 5: The exemptions — how the tax can go to nil

Exemption	What you sell	What you must do	Time limit	Cap
Section 54 (2025 Act: 82)	A residential house	Buy or build one residential house in India	Buy within 1 year before or 2 years after; build within 3 years	Exemption up to ₹10 crore
Section 54F (2025 Act: 86)	Any long-term asset other than a house — a plot, shop, shares	Invest the net sale consideration in one residential house	Same as 54	₹10 crore; not available if you own more than one other house on the sale date
Section 54EC (2025 Act: 85)	Land or building	Invest the gain in notified bonds (such as REC, PFC, IRFC)	Within 6 months of the sale	₹50 lakh — counting the year of sale and the next year together; 5-year lock-in

Two houses, once. Under Section 54, if the long-term gain is ₹2 crore or less, you may reinvest in two residential houses instead of one — but only once in your lifetime.

Not ready to buy before the return is due? Deposit the unutilised amount in the Capital Gains Accounts Scheme at a bank before the due date of your return. Draw from it to buy or build within the time limits. Money left unused at the end of the period is taxed in that year.

A caution on the 20% route. Exemptions are claimed against the capital gain computed in the normal way — without indexation. So in Example 1, full Section 54 relief needs reinvestment against the ₹69 lakh gain, not the ₹33.8 lakh indexed figure. How a partial exemption interacts with the 20% comparison is not spelled out cleanly in the Act. Where you intend to reinvest only part, model both routes before committing.

These exemptions are available under both the old and the new tax regime.

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TDS, advance tax and the return

The buyer deducts TDS. On a property sale of ₹50 lakh or more (the higher of the price and the stamp-duty value), the buyer deducts 1% and deposits it through Form 26QB (Form 141 for payments from 1 April 2026). Check your Form 26AS and AIS show it, or you will be short of credit. See Form 26QB explained.

If you are an NRI seller, the buyer deducts tax on the whole consideration at 12.5% plus surcharge and cess on a long-term sale — far more than the actual tax on the gain — unless you obtain a lower-deduction certificate first. See our guide for NRIs selling property, buying property from an NRI and our NRI taxation services.

Advance tax. The gain is taxable in the year of sale. Pay advance tax on it in the next instalment after the sale. Interest for a shortfall in earlier instalments is not charged where the shortfall arises only from capital gains, provided you pay in the remaining instalments.

The return. A salaried or retired seller files ITR-2 with Schedule CG; a seller with business income files ITR-3. Report the sale in the year of transfer even if you are claiming full exemption — and keep the purchase deed, improvement bills, sale deed, stamp-duty valuation and the exemption investment records for at least eight years.

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Selling in tax year 2026-27 (from 1 April 2026)

The rules are the same; the section numbers change under the Income-tax Act 2025:

Rule	1961 Act	2025 Act
Capital gains — charge	45	67
Computation	48	72
Stamp-duty value	50C	78
Rate on long-term gains, and the pre-23-July-2024 20% option	112	197
House-to-house exemption	54	82
Bonds exemption	54EC	85
Any-asset-to-house exemption	54F	86

Use CII 384 for tax year 2026-27. The full mapping is in our Income-tax Act 2025 section map.

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When to bring in a CA

Before the sale deed, not after. The decisions that save the most — the holding date, the agreement date for stamp-duty value, the split between 54 and 54EC, a lower-deduction certificate for an NRI — are only available before registration. Our real estate capital gains practice computes both routes, plans the exemption, and files the return.

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Frequently Asked Questions

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

Long-term gains (property held more than 24 months) are taxed at 12.5% without indexation. Resident individuals and HUFs selling land or a building bought before 23 July 2024 can instead pay 20% on the indexed gain if that is lower. Short-term gains are taxed at your slab rate. Surcharge (capped at 15%) and 4% cess apply on top.

Is indexation still available on property sales?

Only for resident individuals and HUFs, on land or buildings acquired before 23 July 2024, as an alternative computation at 20% — you pay the lower of that and 12.5% without indexation. For property bought on or after 23 July 2024, and for non-residents and companies, there is no indexation.

Which is better, 12.5% or 20% with indexation?

It depends on how much the property appreciated relative to inflation. For property held ten years or more with ordinary appreciation, 20% with indexation is usually lower. For property bought cheaply long ago that has multiplied many times, 12.5% is often lower. Compute both — the law lets you pay the lower.

How can I avoid capital gains tax on sale of property?

Reinvest. Section 54 exempts the gain on a house sold if you buy or build another residential house within the time limits; Section 54F does the same for a plot or other asset if you invest the net sale consideration in a house; Section 54EC exempts up to ₹50 lakh invested in specified bonds within six months. Unused amounts can be parked in the Capital Gains Accounts Scheme before the return due date.

Do I have to pay tax if I sell below the circle rate?

The stamp-duty (circle) value is treated as the sale price if it exceeds the actual price by more than 10%. You can ask for a reference to a Valuation Officer if the circle rate is above market value, and where the price was fixed by an earlier agreement with part-payment by banking channels, the circle rate on the agreement date can be used.

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Related reading

• Capital Gains Tax on Property Sale in Punjab: Collector Rates, Agricultural Land, NRI Sellers
• Income-tax Notice for a Property Sale: The AIS Mismatch
• Capital Gains Tax FY 2025-26: Stocks, Mutual Funds & Property
• Real Estate Capital Gains Tax Advisory
• Form 26QB: TDS on Property Purchase