Introduction
The taxable capital gain is not necessarily the difference between the acquisition and the sale price in its entirety. The regulations have changed effective 23 July 2024, especially in the areas of indexation and long-term capital gains. A grandfathering clause could cover some residents and HUFs who purchased land or structures prior to that date. It means the previous site descriptions may not be relevant to represent the implementation regulations in 2026.
What Is Capital Gains Tax on Property Sale?
If you sell a capital asset such as a house, flat, land or company property for more than it cost you, you may have to pay capital gains tax. The taxable gain is usually calculated by deducting the relevant cost of acquisition, permitted expenses on renovations and expenses linked to the transfer. The treatment depends on the type of property, the period owned, when you sold it and the tax rules in force.
Other property fees are not equal to capital gains taxes. Property tax is a local authority tax charged for ownership of property, stamp duty and registration charges are generally paid when property is bought or registered. GST is a separate indirect tax and should not be confused with capital gains income tax.
Short-Term vs Long-Term Capital Gain on Property
Short-Term Capital Gain (STCG)
STCG is normally the gain arising from the sale of immovable property within 24 months of acquisition. It is generally included in the taxpayer's income and taxed at the rates applicable to income tax, taking into account the particular rules applicable to the taxpayer.
Long-Term Capital Gain (LTCG)
LTCG rate of 12.5% on land or building, for transfers after July 23 2024 as per relevant provisions and exclusions. Grandfathering comparison is available for some resident persons and HUFs selling property acquired before July 23, 2024, when the tax calculation with indexation at 20% may be lower.
- Purchased: January 2023
- Sold: December 2023 - Short-Term Capital Gain
- Purchased: January 2023
- Sold: August 2026 - Long-Term Capital Gain
Capital Gains Tax Rate on Property in 2026
The basic LTCG tax rate is 12.5% without indexation for long-term transfers of buildings or land made on or after July 23, 2024. For pertinent real estate sales in 2026, this is the post-2024 framework.
The law provides a method for comparison in case of sale of a building or property acquired before 23rd July, 2024, by a qualified resident individual or HUF. The clause is designed to ensure that the new regime does not lead to a higher tax liability in cases when the tax liability under the new 12.5% method is compared with the stated tax calculation using the older indexed-cost method.
So it’s not true that all property sellers can choose between 12.5% without indexation and 20% with indexation. Every transaction, eligibility, acquisition date, taxpayer status and the appropriate computation must be confirmed.
What Happened to Indexation?
Indexation permitted property sellers to use the Cost Inflation Index to account for inflation in the acquisition and qualifying improvement costs. Indexation has typically been eliminated for long-term capital assets transferred after July 23, 2024 and the LTCG rate has been rationalised to 12.5% without indexation.
| Before July 23, 2024 | After July 23, 2024 | |
| LTCG Rate | 20% | 12.5% |
| Indexation | Available | Removed |
| Property acquired before 23 July 2024 | Grandfathering may apply for eligible resident individuals/HUFs | Compare prescribed indexed and new calculations |
| Property acquired on/after 23 July 2024 | _ | 12.5% without indexation |
How Is Capital Gain on Property Calculated?
Sale Consideration
Eligible Acquisition Cost − Eligible Improvement Cost − Eligible Transfer Expenses = Capital Gain
Subject to the relevant regulations, charges incurred solely and exclusively for the sale, such as commission or broking, may be considered eligible transfer expenses.
Indexation usually does not apply to applicable long-term transactions made after July 23, 2024. Nonetheless, the grandfathering comparison might be accessible to qualified residents and HUFs selling properties or land purchased prior to that date.
Expenses That May Reduce Taxable Capital Gain
There are various charges that you can deduct from the capital gain that are directly tied to the purchase, renovation or transfer of the property. The Income Tax Department allows only and exclusively the charges incurred in connection with the transfer. Such expenses may include commission, broking and other fees linked to transfer and qualified legal fees.
The cost of acquisition can comprise the purchase price and other allowable charges incurred in acquiring the property. Similarly, genuine capital spend on improvements may be qualified as cost of improvement subject to relevant legislation and documentation.
As a general rule, normal maintenance, furniture, ordinary repairs and interest previously claimed under applicable income-tax regulations cannot be added to the renovation cost.
Example: Capital Gains Tax on a Gurgaon Property
- Sale consideration: ₹3.50 crore
- Less: Transfer expenses: ₹5 lakh
- Less: Improvement cost: ₹10 lakh
- Less: Acquisition cost: ₹2 crore
- Capital gain: ₹1.35 croreÂ
The grandfathering agreement will apply in case the property was purchased before 23rd July, 2024 and sold by an eligible resident individual or HUF after the said date. The surplus is discarded where relevant in the new technique when comparing the tax under the 12.5% method with the mandatory older 20% indexed computation.
Can You Save Capital Gains Tax by Buying Another House?
Where a residential property is sold by an eligible person or HUF and the sale proceeds are invested in another residential property in India, then exemption from long-term capital gains under Section 54 may be available, subject to the conditions being satisfied.
Usually, the new home must be constructed within three years of the transfer or purchased within one year before or two years after the sale. In general terms the exemption would be restricted to the lower of the qualifying investment and eligible capital gain, subject to a maximum investment of ₹10 crore.
If the required quantity is not utilised prior to the return filing deadline, the Capital Gains Account Scheme (CGAS) may be relevant. In addition, the exemption on the new property is subject to a three year lock-in term. Sellers should check if they are eligible to depend on Section 54 or not as Section 54 has several criteria.
Section 54F – When Is It Relevant?
Section 54F typically comes into play when an eligible person or HUF sells a long-term capital asset other than a residential house and invests the qualifying net consideration in a residential house in India, subject to specified conditions, whereas Section 54 applies to the sale of a long-term residential house.
The exemption is based upon the taxpayer meeting the eligibility requirements and is based on the amount of net consideration reinvested. These include limitations on residential home ownership and adherence to the designated building or acquisition schedules. If the claim has been submitted and certain standards have been violated, the exemption may be cancelled.
Sellers should go through the relevant section carefully before structuring a contract as Section 54F and Section 54 have differing eligibility requirements, computation methodologies and ownership limits. A full comparison of Section 54 and Section 54F will be taken up in a separate essay later in this series.
Section 54EC – Capital Gains Bonds
For capital gains resulting from the transfer of long-term land or buildings, Section 54EC provides a further avenue for exemption. When the qualifying capital gain is invested in designated bonds within six months after the transfer date, the exemption becomes available. Subject to the statutory requirements, the exemption is often restricted to the smaller of the capital gain, the amount invested, or ₹50 lakh.
Sellers should think about whether they can retain their money invested during the bonds’ five-year lock-in period. An early transfer or conversion may impact the exemption.
Additionally, HUDCO bonds issued on or after April 1, 2025, have been designated by the government as qualified long-term specified assets.
What Is the Capital Gains Account Scheme?
The Capital Gains Account Scheme (CGAS) provides a way to keep alive a potential reinvestment exemption if the eligible capital gains are not utilised for constructing or acquiring the qualifying asset before the due date for filing the income-tax return. The unused amount may normally be invested in CGAS with an eligible bank before that date subject to the relevant exemption conditions. The deposit does not substitute for the construction or eligible purchase within the time period specified.
Sellers should take note of the date of the CGAS deposit and the ultimate deadline for reinvestment, as well as maintain accurate records of contributions and withdrawals.
What If You Sell Property Below Stamp Duty Value?
Section 50C may affect the computation of capital gains when an immovable property is sold at a value lower than its stamp-duty value. Where the stamp-duty value exceeds the reported selling consideration by more than the permitted 10% safe-harbor margin, it is usually acceptable as the presumed full amount of consideration for capital gains purposes. The current return forms of the Income Tax Department require the 110% requirement.
This becomes very important when the seller offers a price less expensive than the relevant circular rate or collector rate. The fact that the amount received was smaller does not mean that capital gains will only be decided on that basis.
Therefore, before completing the deal, sellers should compare the agreed-upon sale price with the required stamp-duty value and, if the difference is substantial, seek professional tax assistance.
TDS When Selling Property
The buyer’s TDS deduction and the seller’s ultimate capital gains tax obligation are two different things. When the transaction satisfies the relevant requirements and threshold, the buyer is required to pay TDS on qualifying purchases of real estate. The seller’s final capital gains tax is not determined only by the amount deducted; it is typically shown as a tax credit.
The previous Section 194-IA structure has been combined under the new provisions of the Income Tax Act, 2025, which will apply to pertinent TDS occurrences as of April 1, 2026. Form 141 is now utilised for the TDS-cum-challan statement in qualified property transactions.
Therefore, before closing the deal, sellers should confirm the applicable TDS rate, threshold, form, and compliance procedure based on the transaction date.
Capital Gains on Residential vs Commercial Property
When selling a variety of real estate, such as a residential flat, independent home, plot of land, commercial office and retail property, capital gains principles may be applicable. The Income Tax Department treats gains from the transfer of capital assets under the capital-gains regulations; the appropriate computation is based on the asset, holding duration, acquisition cost, and transfer date.
Post-sale there may be other exclusions available depending on the asset being transferred and how the capital gains or sale proceeds are reinvested. For example, clauses like Sections 54, 54F and 54EC have varied qualifying restrictions. Consequently, sellers need to know the property type and any available exemption rules before creating a reinvestment plan.
Capital Gains Tax for NRI Property Sellers
Like NRI selling a home or commercial property in India, they may be liable to pay capital gains tax. Handling of TDS is extremely important for NRI sellers. Section 195 applies to payments to a non-resident seller, whereas section 194-IA generally applies to resident sellers whose eligible property acquisitions are covered. The domestic rate applicable to long term profits on property transferred on or after 23rd July, 2024 is normally at the rate of 12.5% plus surcharge and cess where applicable.
NRI sellers should also note that the grandfathering provision for residents alone will not be applicable to non-residents for land or buildings constructed prior to July 23, 2024.
Common Mistakes Property Sellers Make
Property sellers who view capital gains as the simple difference between the buy and sale price are at danger of making costly blunders. One common mistake is assuming the entire price difference is taxable without considering qualified acquisition, improvement and transfer costs. Sellers can continue to use the old 20%+ indexation data, despite the rule changes that become effective July 23, 2024.
A couple more faults are getting mixed up about the 24-month holding period on buildings and land or failing to maintain documents and invoices for qualifying improvements. Sellers also need to distinguish between their final tax liability and the TDS deduction by the buyer.
Documents Sellers Should Keep
Property sellers must retain all documents proving the acquisition, ownership, improvement, sale, and any reinvestment claimed for tax purposes. Supporting documents are also important as the Income Tax Department specifically looks at the acquisition cost, cost of improvement and expenses associated to transfer while computing the capital gains.
Some of the important documents are the first deed of purchase or sale, purchase payment documents, registration and stamp-duty documents and previous ownership documents in case of previous ownership. Sellers should also keep receipts and evidence of payment for eligible upgrades and broking invoices relating to the sale.
Maintain evidence of CGAS deposits and withdrawals, evidence of investment in designated bonds and evidence of new property purchases at the time of applying for a reinvestment exemption. TDS certificates and transaction information should also be maintained to reconcile the buyer’s tax deduction with the seller’s ultimate tax position.
How to Plan a Property Sale Tax-Efficiently?
- Find out when the property was purchased.
- Identify the relevant holding period.
- Calculate qualifying costs for acquisitions and improvements.
- Estimate the capital gain, less allowable transfer expenses.
- Determine the correct treatment and rate for STCG or LTCG.
- Determine eligibility under section 54, 54F or 54EC as the case may be.
- Plan any qualified reinvestment within the deadlines set forth.
- Review effects of TDS especially on NRI transactions.
- Keep records of acquisition, improvement, sale, TDS and reinvestment.
- If you are entering into a high-value transaction, particularly one involving exemptions, grandfathering or complex ownership arrangements, you should seek advice from a CA or other competent tax professional.Â
Conclusion
It is important to know about capital gains tax before you sell, not after you get the money. The date of acquisition, holding period, indexation or grandfathering rules, eligible expenses and reinvestment strategy can all play a big role in determining the eventual tax burden for property owners in Delhi NCR, particularly those selling high-value homes in Gurgaon. Therefore, both buyers and sellers need to be extremely careful about their options before finalising the sale. Tax and legal issues should be dealt with by professional specialists, however Shray Projects can help customers in analysing property-related decisions to support the property transaction and advisory process.
Disclaimer: Individual situations and tax laws differ. For individualised tax computations and guidance, speak with a certified CA or tax expert.
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