Income Tax Notice for Capital Gains on Property Sale: The AIS Mismatch, and How to Reply

You sold a house, a flat, or a plot. Months later — sometimes a year or two later — a communication arrives from the income-tax department. It might be an intimation proposing to add capital gains to your income, a “confirm or explain” flag on the compliance portal, or a show-cause asking why the year should not be reopened. Whatever the form, the substance is the same: the department has a record of your sale, and your return does not agree with it.

This is now one of the most common notices reaching individual taxpayers, and one of the most mishandled — because the taxpayer usually did nothing wrong except fail to reconcile. This guide explains where the department’s number comes from, the legitimate reasons it differs from yours, how the gain is actually computed for FY 2025-26, and what a reply has to contain.

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Where the department’s number comes from

Two independent reports reach your Annual Information Statement the moment a property changes hands.

The sub-registrar. Every registered transfer of immovable property valued at ₹30 lakh or more is reported under the Statement of Financial Transactions — with the parties’ PANs, the date of registration, and the consideration as stated in the deed or the stamp-duty value, whichever the registrar records. It appears in your AIS under “Sale of immovable property,” and in the buyer’s AIS under “Purchase of immovable property.”

The buyer. On any sale where the consideration is ₹50 lakh or more, the buyer must deduct 1% TDS under Section 194-IA, deposit it with Form 26QB, and issue you Form 16B. That deduction appears in your Form 26AS against your PAN, with the gross consideration on which it was computed.

The department’s rule then does something simple: it looks for a capital-gains schedule in your return for that year, and compares the sale consideration you declared with the figure the registrar and the buyer reported. A missing schedule, or a materially different figure, is flagged. No officer is involved. No allowance is made for the reasons below until you make it.

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The eight legitimate reasons for a mismatch

Most property notices are not about concealment. They are about one of these, none of which the automated match can see.

#	What happened	Why the AIS disagrees with your return
1	Joint ownership	The registrar often reports the full consideration against each co-owner’s PAN. If you own half and declared half, the AIS shows double.
2	Stamp-duty value above the actual price	Under Section 50C, if the deed price is below the stamp-duty value, the stamp-duty value is deemed the consideration — unless the difference is within 10%. The AIS may carry the higher figure; your return may carry the price you actually received.
3	Date of transfer vs date of registration	Possession and payment in March; registration in April. The transfer falls in one financial year, the SFT report in the next.
4	Inherited or gifted property	You declared the gain correctly using the previous owner’s cost and holding period under Section 49(1) — but the AIS shows a large sale against a PAN that never showed a purchase.
5	Rural agricultural land	Not a capital asset at all under Section 2(14), so no gain arises — but the registrar reports the sale regardless.
6	Exemption claimed under 54, 54F, or 54EC	The gain was correctly reduced to nil or near-nil, but the department cannot see the new house, the Capital Gains Account Scheme deposit, or the bonds unless you show them.
7	Duplicate reporting	The registrar and the buyer both reported; a second buyer’s TDS entry doubles the figure; or the same transaction appears in two years.
8	Advance received earlier	Part of the consideration was received and taxed as an advance in an earlier year, or forfeited under Section 51. The current-year figure is smaller than the deed value.

Every one of these is a reply that wins on documents. Every one of them loses if the reply merely says “the gain was correctly declared.”

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How the gain is actually computed for FY 2025-26

Before you can reconcile, you need the right number. The rules changed materially for transfers on or after 23 July 2024.

Holding period. Immovable property held for more than 24 months is a long-term capital asset. Held for 24 months or less, the gain is short-term and taxed at your slab rate.

Long-term rate. For transfers on or after 23 July 2024, long-term capital gains on property are taxed at 12.5% without indexation. But if you are a resident individual or HUF and the property was acquired before 23 July 2024, you may instead pay 20% with indexation — whichever produces the lower tax. This election matters, and it goes the other way more often than people expect.

Cost of acquisition. Actual cost, plus the cost of improvements. For property acquired before 1 April 2001, you may substitute the fair market value as on that date — but not more than the stamp-duty value as on that date. For inherited or gifted property, the previous owner’s cost and holding period carry over.

Deemed consideration. If the deed price is below the stamp-duty value by more than 10%, Section 50C substitutes the stamp-duty value. In Punjab and the Tricity, where collector rates in several localities sit above transacted prices, this is the single most frequent source of a mismatch — and the buyer’s 26QB will often have been filed on the deed value, not the collector rate, producing two different figures in your own AIS.

Worked example

Facts: Flat in Mohali purchased in June 2015 for ₹40 lakh; sold in August 2025 for ₹90 lakh; deed price at or above the collector rate; seller is a resident individual.

	12.5% without indexation	20% with indexation
Sale consideration	₹90,00,000	₹90,00,000
Cost of acquisition	₹40,00,000	₹40,00,000 × 376 ÷ 254 = ₹59,21,260
Long-term capital gain	₹50,00,000	₹30,78,740
Tax (before cess)	₹6,25,000	₹6,15,748

Indexation wins here, narrowly — because the property was held long enough for the index to move from 254 to 376. Sell a property bought in 2022 and the 12.5% route wins comfortably. The point is that the election has to be computed, not assumed, and a return that picked the wrong one is itself a mismatch waiting to be flagged.

Exemptions that reduce the gain to nil. Reinvest the gain in one residential house within one year before or two years after the sale — three years if constructing — and claim Section 54 (two houses if the gain is ₹2 crore or less, once in a lifetime; exemption capped at ₹10 crore). Sell a non-residential asset and reinvest the net consideration in a house for Section 54F. Invest up to ₹50 lakh in specified bonds within six months for Section 54EC. Any amount not yet reinvested by the return due date must sit in a Capital Gains Account Scheme deposit, or the exemption is lost.

Cost inflation index: FY 2015-16 = 254; FY 2025-26 = 376; FY 2026-27 = 384 (CBDT Notification 85/2026). Cess of 4% applies on top of the tax shown. Figures are indicative; the actual computation depends on improvements, transfer expenses, and any advance or forfeiture. For sales on or after 1 April 2026 the same rules apply under the Income-tax Act 2025 — capital gains are in Sections 67 to 88, with indexation under Section 72(8).

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The notices you may receive

Notice	What it says	Your window	If you do nothing
143(1)(a) proposed adjustment	The processing centre proposes to add the capital gain visible in AIS, or to disallow an exemption	30 days	Adjustment made; demand raised
Compliance-portal / e-Verification flag	”Confirm or explain” the sale of immovable property reported in AIS	As specified	Escalates to a 148A show-cause
133(6) information request	The officer asks for the sale deed, purchase deed, and computation	As specified	Adverse inference
148A show-cause	The department believes the gain escaped assessment and proposes to reopen the year — up to three years back, or five if the escaped income is ₹50 lakh or more	Never less than seven days	Reassessment proceeds on the department’s figure
143(2) scrutiny	The return is selected for detailed examination, often with the reason stated as a property-sale mismatch	About 15 days	Best-judgement assessment

Property gains are large numbers, and the five-year reassessment window is designed for exactly them. A sale of ₹90 lakh with no capital-gains schedule is the archetypal 148A case.

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How to reply

The reply is a reconciliation, not an argument. It has four parts.

1. Reconcile the AIS entry to the deed, line by line. State the consideration in the deed, the stamp-duty value, your share if jointly held, the date of transfer, and the figure declared in the return. Explain each difference with a document: the deed for the price and date, the co-owner’s return for the share, the 50C computation for the stamp-duty gap, the earlier year’s return for an advance.

2. Set out the computation in full. Purchase deed and cost; improvement bills; the indexation-or-not election with both figures shown; transfer expenses; the resulting gain. If the property was inherited, the chain of title and the previous owner’s cost. If rural agricultural land, the revenue record establishing distance from the municipality and population.

3. Evidence the exemption. The new house’s deed and payment trail; the Capital Gains Account Scheme passbook; the 54EC bond certificates with dates showing the six-month window was met. An exemption claimed without this is an exemption the department will disallow.

4. If the gain was genuinely omitted, correct it — through the cheapest route still open. A revised return under 139(5) if the window is open; agreement to the 143(1)(a) adjustment with an immunity application under 270AA; an updated return under 139(8A) if the year is closed for revision and not under reassessment. Voluntary correction before the department completes its action is what keeps a 50% penalty from becoming 200%.

A note for sellers in Punjab and the Tricity

Three things come up repeatedly in Kharar, Mohali, and Chandigarh property sales. Collector rates — the stamp-duty values notified for each locality — frequently exceed what the property actually fetches, and Section 50C then deems the higher figure your consideration unless the gap is within 10%; a valuation-officer reference under 50C(2) is available where the collector rate is demonstrably above market. Agricultural land on the urban fringe is often assumed to be exempt when it is not: land within the notified distance of a municipality is a capital asset, and the sale is taxable. And NRI sellers face TDS under Section 195 on the entire consideration rather than 1% under 194-IA — a lower-deduction certificate under Section 197, applied for well before registration, is the only way to avoid a large refund claim later. Our capital-gains advisory for real estate and Form 26QB service cover both sides of the transaction.

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What not to do

• Do not ignore an AIS flag because “the gain was exempt.” Exempt is a conclusion the department reaches only when it sees the evidence.
• Do not declare your share and leave the AIS double-count unexplained. The joint-ownership mismatch is the commonest, and it is a two-line reply with the co-owner’s PAN — but it has to be made.
• Do not assume the 12.5% rate. Compute both routes; the wrong election is a mismatch of its own.
• Do not let the buyer’s 26QB be the only record of the sale. If the buyer filed 26QB on a different figure from the deed, or against the wrong PAN in a joint holding, get it corrected — the error propagates into your AIS.
• Do not file ITR-U reflexively. Check whether a revised return is still open, and whether a reassessment notice already exists for the year.

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Frequently asked questions

The AIS shows the full sale value but I own only half the property. What do I do?

Reply with the co-ownership evidence — the deed showing both names, the share, and the co-owner’s PAN and return in which the other half was declared. This is the most common property mismatch and the easiest to close, but it must be answered; the automated match cannot see shares.

The stamp-duty value is higher than what I was actually paid. Which figure is taxed?

If the stamp-duty value exceeds the actual consideration by more than 10%, Section 50C deems the stamp-duty value your consideration. If you believe the stamp-duty value is above fair market value, you can ask the assessing officer to refer the valuation to a Valuation Officer under 50C(2), and the lower of the two then applies.

I sold in March but the registration happened in April. Which year is the gain taxed in?

The year in which the transfer took place — generally when possession was handed over against payment under a registered or registrable agreement — not necessarily the year of registration. The SFT report follows registration, so the AIS may show the sale in the following year. The reply explains the timing with the agreement and possession letter.

I inherited the property. Is the whole sale price my gain?

No. Under Section 49(1) you step into the previous owner’s cost and holding period. If the property was acquired before 1 April 2001, the fair market value on that date, capped at the stamp-duty value on that date, can be adopted as cost, and indexation runs from 2001-02. The gain is usually far smaller than the sale price suggests.

I reinvested in a new house but the notice still proposes to add the gain. Why?

Because the exemption is invisible to the department until you evidence it: the new property’s deed and payment proof within the time limits, or the Capital Gains Account Scheme deposit made before the return due date for any amount not yet spent. Reply with those documents and the exemption stands.

What happens if I genuinely forgot to report the sale?

Correct it voluntarily before the department completes its action. A revised return if the window is open; agreement to the adjustment with a 270AA immunity application; or an updated return under 139(8A) if the year is closed. Voluntary correction with a bona fide explanation and full disclosure keeps the matter within Section 270A(6)(a), rather than the 200% misreporting bracket that an unreported sale otherwise invites.

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Related reading

• Income Tax Notice Reply & Representation — our service
• Capital Gains Tax Advisory for Real Estate
• Form 26QB — TDS on Property Purchase
• Capital Gains Tax FY 2025-26: Stocks, Mutual Funds & Property
• Buying Property from an NRI: TDS under Section 195
• Claimed 44AD Instead of 44ADA? What the Notice Means