Capital Gains Tax on Property Sale in India 2026: LTCG, STCG & Section 54 Exemptions

LTCG vs STCG: The 24-Month Test

For immovable property — residential flats, plots, commercial units, or any land and building — the holding period that separates short-term from long-term capital gains is 24 months.

• Held for 24 months or less from the date of acquisition: Short-Term Capital Gain (STCG) — taxed at your applicable income slab rate (up to 30%)
• Held for more than 24 months: Long-Term Capital Gain (LTCG) — taxed at a concessional rate (see below)

The 24-month clock starts from the date of allotment in the case of under-construction property, not from the date of registration or possession in many interpretations — this is a point worth getting right, as classification can swing the tax by 10+ percentage points.

LTCG Tax Rate After Budget 2024: The Indexation Change

The Finance (No. 2) Act, 2024 made a significant change to long-term capital gains on property:

• Property acquired on or after 23 July 2024: LTCG taxed at 12.5% without indexation
• Property acquired before 23 July 2024 (resident Indians only): Taxpayer can choose either:
  • 12.5% on gain without indexation, or
  • 20% on gain with indexation (Cost Inflation Index applied to the purchase price)
  The lower liability option may be chosen at the time of filing.

For property held over many years with significant appreciation, the 20% with indexation route can still produce a lower tax liability than 12.5% without indexation — but this must be calculated for your specific purchase price, year of acquisition, and sale value.

NRIs note: The option to choose between 12.5% without indexation and 20% with indexation for pre-July 2024 property also applies to NRIs, though TDS is deducted at 20% + surcharge + cess by the buyer in all cases (see below).

How Long-Term Capital Gains Are Calculated

LTCG = Sale consideration − Indexed (or non-indexed) cost of acquisition − Cost of improvement − Transfer expenses

• Sale consideration: The full value received from the buyer (or stamp duty value if higher — Section 50C)
• Indexed cost of acquisition (if using indexation): Purchase price × (CII of year of sale ÷ CII of year of purchase)
• Cost of improvement: Capital expenditure incurred on the property after acquisition (renovation, additions) — with indexation if applicable
• Transfer expenses: Brokerage, legal fees, stamp duty on the sale agreement (not on the original purchase)

An important trap: if the stamp duty valuation of the property (circle rate / ready reckoner value) is higher than the agreed sale price, the higher value is treated as the sale consideration under Section 50C. This is frequently encountered in markets where circle rates have not been revised downward.

Section 54: Exemption by Reinvesting in Residential Property

If you sell a residential property and reinvest the long-term capital gains in another residential property in India, you can claim exemption under Section 54:

• Purchase a new residential property 1 year before or 2 years after the date of sale, or
• Construct a new residential property within 3 years of the date of sale
• The amount to be reinvested is the capital gain, not the full sale proceeds
• From Budget 2023: exemption under Section 54 is capped at ₹10 crore per transaction (gains above ₹10 crore are fully taxable)
• If you purchase the new property within 1 year before the sale date, the acquisition cost is still eligible

If the new property is not purchased before the ITR filing due date, the unused capital gain amount must be deposited in a Capital Gains Account Scheme (CGAS) with a scheduled bank before the due date. The deposit can be withdrawn for purchase/construction within the specified timeline.

Section 54F: Exemption for Gains from Non-Residential Assets

If you sell a non-residential asset (commercial property, plot, shares, or any long-term capital asset other than a residential house) and reinvest the net sale proceeds (not just the gain) in a residential property, Section 54F provides an exemption proportional to the amount reinvested.

• To get full exemption: entire net sale proceeds must be invested in the new residential property
• Partial investment gives proportionate exemption
• You must not own more than one residential house (other than the new one) on the date of sale
• Same timeline applies: buy within 1 year before or 2 years after, or construct within 3 years

TDS on Property Sale: What Buyers and NRI Sellers Must Know

When a resident individual buys property worth ₹50 lakh or more, the buyer must deduct TDS at 1% of the sale value under Section 194IA and deposit it with the government. The seller receives the balance.

For NRI sellers, the rules are far more onerous: the buyer is required to deduct TDS at 20% (plus applicable surcharge and cess) on the entire sale value under Section 195 — irrespective of the profit. On a ₹1 crore property sale where the actual gain is ₹15 lakh, the buyer must withhold ₹20+ lakh as TDS. The NRI then files an ITR in India to compute the actual tax liability and claim a refund of the excess.

To avoid this cash flow problem, NRI sellers can apply for a lower or nil TDS certificate under Section 197 before the sale transaction. The Income Tax officer assesses the actual expected gain and issues a certificate authorising TDS at a lower rate. This process takes 4–8 weeks and must be initiated well before the sale agreement is signed.

How GSRC and Associates Can Help

Capital gains tax on property involves multiple variables — holding period, circle rate, indexation choice, Section 54 eligibility, CGAS deposits, and for NRIs, the Section 197 certificate. A miscalculation or missed deadline (especially for Section 54 reinvestment) can result in a tax demand that wipes out a significant portion of your sale proceeds.

GSRC and Associates, Navi Mumbai handles capital gains computations, Section 197 applications for NRI sellers, CGAS account advice, ITR-2/ITR-3 filing with capital gains schedules, and end-to-end property tax compliance for both resident and NRI clients.

If you are planning to sell property — or have already sold — WhatsApp us before you file. Getting the Section 54 reinvestment and CII calculation right from the start is far simpler than dealing with a notice later.