Capital gains tax on selling a house in India (2026): 12.5% vs 20% with indexation, worked out
How tax on a property sale is calculated in India: short- and long-term gains, 12.5% without indexation, the 20% option for pre-July 2024 property, what you can deduct and a worked example.
If you sell a house or flat in India after holding it for more than 24 months, the profit is a long-term capital gain taxed at 12.5% without indexation, plus surcharge where applicable and 4% health and education cess. If you are a resident individual or HUF and bought the property before 23 July 2024, you can instead pay 20% with indexation if that gives less tax. Sell within 24 months and the gain is short-term, added to your income and taxed at your slab rate. Brokerage and other transfer costs reduce the gain. Reinvesting in a house or in specified bonds can reduce it further.
From 1 April 2026 these rules sit in the Income-tax Act, 2025, where the long-term capital gains rate is in section 197 (formerly section 112). The rates and the 24-month holding period carried over. Section numbers from the 1961 Act, such as Section 54, are still how most people refer to the exemptions, and this site uses them alongside a note on the change.
Short-term or long-term?
| Holding period of land or building | Type of gain | Tax |
|---|---|---|
| 24 months or less | Short-term | Added to income, taxed at your slab rate under the regime you choose |
| More than 24 months | Long-term | 12.5% without indexation; or, for resident individuals/HUFs on property acquired before 23 July 2024, the lower of that and 20% with indexation |
The holding period usually runs from the date of the registered purchase deed, or the allotment letter for a flat booked from a builder, to the date of the sale deed. Inherited property counts the previous owner's holding period too, and its cost is the previous owner's cost.
How the gain is calculated
Capital gain = full value of consideration − cost of transfer − cost of acquisition − cost of improvement
- Full value of consideration: the sale price, or the stamp duty value if that is more than 110% of the price. See the circle rate guide.
- Cost of transfer: brokerage on the sale, legal fees on the sale, and advertising. Keep invoices.
- Cost of acquisition: what you paid, including the stamp duty, registration and brokerage you paid when buying. For property acquired before 1 April 2001, you may use its fair market value on that date, capped at the stamp duty value on that date.
- Cost of improvement: capital spending such as adding a floor or a major structural renovation. Routine repairs and painting do not count, and nothing spent before 1 April 2001 counts.
- Indexation (only under the 20% option): each cost is multiplied by the cost inflation index (CII) of the year of sale ÷ the CII of the year of purchase or improvement.
Interest paid on a home loan is not added to the cost if you have already claimed it as a deduction.
Worked example: which option is cheaper?
Illustrative flat bought in FY 2015-16 for ₹50,00,000 (including stamp duty and registration). Sold in FY 2025-26 for ₹1,10,00,000, with brokerage of ₹1,29,800 (1% + 18% GST). CII 2015-16 = 254; CII 2025-26 = 376 (CBDT notification).
Option A, 12.5% without indexation:
- Gain = ₹1,10,00,000 − ₹1,29,800 − ₹50,00,000 = ₹58,70,200
- Tax at 12.5% = ₹7,33,775; with 4% cess = ₹7,63,126
Option B, 20% with indexation:
- Indexed cost = ₹50,00,000 × 376 ÷ 254 = ₹74,01,575
- Gain = ₹1,10,00,000 − ₹1,29,800 − ₹74,01,575 = ₹34,68,625
- Tax at 20% = ₹6,93,725; with 4% cess = ₹7,21,474
Here the indexed option is cheaper by about ₹41,600. The faster the property's price grew relative to inflation, the more likely 12.5% without indexation wins. A property that has roughly doubled in ten years is close to the break-even point. Run both options every time. The surcharge applies on top for high incomes; for long-term capital gains it is capped at 15%.
Ways to reduce or defer the tax
- Section 54 (house to house): invest the long-term gain from a residential house in another residential house in India, bought one year before or two years after the sale, or constructed within three years. The exemption is capped at ₹10 crore.
- Section 54EC (bonds): invest up to ₹50 lakh of the gain within six months in specified bonds (NHAI, REC, PFC, IRFC), locked in for five years.
- Section 54F (other assets to a house): for a gain on a plot or commercial property, invest the net sale consideration in a residential house, subject to conditions on houses already owned.
- Capital Gains Account Scheme: park unused money in a designated bank account before your return is due if you have not yet bought or built.
The Section 54 and 54EC guide works through these with numbers. The 2025 Act renumbered these exemptions. The old names appear here because they are how banks, brokers and most advisers still refer to them; confirm the new section in the return utility.
Reporting and paying
- The buyer deducts 1% TDS on a resident seller's sale of ₹50 lakh or more. It appears in your annual tax statement and counts against your final tax. See TDS on property.
- 1% is far less than the tax on most long-term gains, so pay advance tax in the quarter of sale to avoid interest for late payment. Advance tax on capital gains is due in the instalments that fall after the sale.
- Report the sale in the capital gains schedule of your return with the date of purchase, date of sale, stamp duty value, buyer's PAN and the cost workings.
- NRI sellers face higher TDS on the gain. See the NRI seller guide.
FAQ
Can the basic exemption limit be used against long-term gains?
For resident individuals, if your other income is below the basic exemption limit, the shortfall can be adjusted against long-term capital gains. Rebates have their own conditions on special-rate income. Check the return utility for your year.
What if I sell at a loss?
A long-term capital loss can be set off only against long-term gains and carried forward for eight years, provided you file your return on time. A short-term loss can be set off against short- or long-term gains.
Is the gain taxed if I sell my only house and buy a bigger one?
Not if you invest at least the gain in the new house within the time limits and keep it for three years. Section 54 then exempts the gain up to the amount invested, within the ₹10 crore cap.
Does the new tax regime change capital gains rates?
No. Capital gains rates apply under both regimes. Your choice of regime affects the slab rate on short-term gains and on other income.
Sources
- Income Tax Department e-filing portal — return forms, advance tax and the capital gains schedule
- Income Tax Department — Income-tax Act, 2025 text and cost inflation index notifications
- India Code — official text of the Income-tax Act
- See also the overview of buying and selling costs and the seller's net proceeds example
