Most property sellers find out how capital gains tax works only after the sale deed is signed, by which point most of the planning options have closed. The rules changed meaningfully in 2024, and a lot of the advice still floating around online is based on the older indexation-based system. Here's where things actually stand for FY 2025-26 (AY 2026-27), including the specific choice available for property bought before the rule change.
Everything about how a property sale is taxed starts with one number: how long you held it before selling.
This single distinction changes your tax outcome more than almost anything else, so getting the holding period right — counting from the date of the original agreement or possession, not just the registration date — matters more than people usually realise.
Since the Budget of July 2024, long-term capital gains on property are taxed at a flat 12.5% without indexation — meaning you no longer adjust your purchase price for inflation before calculating the gain.
But there's an important carve-out: if you're a resident individual or HUF and the property was purchased before 23rd July 2024, you can choose between:
You calculate both and pay whichever results in lower tax. For property bought after that date, only the 12.5% flat rate applies — there's no indexation option available anymore.
This grandfathering clause is genuinely worth running the numbers on. Properties bought many years ago, where the purchase price is heavily understated relative to current inflation-adjusted cost, often still come out cheaper under the older 20%-with-indexation route, even though the headline rate looks higher.
The starting point isn't always your sale agreement value — it's the higher of the actual sale price or the stamp duty (circle rate) valuation of the property under Section 50C. If your sale price is meaningfully below the circle rate, the tax department treats the circle rate as your deemed sale consideration, unless the difference is within a small tolerance band.
From that figure, you can deduct:
A quick example: Say you sell a property for ₹1,20,00,000, originally bought for ₹70,00,000, with ₹2,00,000 spent on documented improvements. Ignoring indexation (12.5% route):
If this property qualifies for the indexation choice and the indexed cost works out higher than ₹72,00,000, the 20%-with-indexation route might reduce the taxable gain enough to result in lower tax despite the higher rate — which is exactly why running both calculations matters.
If you haven't identified a replacement property or bonds by the time you file your return, depositing the gain in a Capital Gains Account Scheme with a bank before the filing due date preserves your exemption eligibility until you actually reinvest, within the applicable time limits.
If you're selling property valued at ₹50 lakh or more, the buyer — not you — is required to deduct 1% TDS on the sale consideration (or the stamp duty value, if higher) and deposit it against your PAN before paying you the balance. This isn't an additional tax; it's TDS that shows up in your Form 26AS and gets credited against your final capital gains liability when you file your return.
For NRI sellers, the applicable TDS rate is considerably higher — closer to the actual LTCG rate plus surcharge and cess, deducted under Section 195 rather than 194-IA — and NRIs often need to apply for a lower or nil TDS certificate in advance to avoid excess deduction being locked up until refund.
Capital gains from property sale, whether short-term or long-term, have to be reported under Schedule CG in your income tax return, which rules out ITR-1 and ITR-4 — you'll need ITR-2 (or ITR-3, if you also have business income). The schedule requires details of the sale, the cost of acquisition, any exemption claimed under Sections 54/54F/54EC, and the date of transfer. Rushing this section or leaving out the stamp duty valuation comparison is one of the more common reasons a capital gains return gets flagged for review.
The most expensive mistake is selling without checking the circle rate first — a sale priced well below it doesn't reduce your tax; it just gets overridden by Section 50C, leaving you taxed on a value you didn't actually receive. Another common one is missing the reinvestment deadline for Section 54 or 54EC by a matter of weeks, which forfeits an exemption that could have eliminated the tax bill entirely. And plenty of sellers assume indexation is still automatically available — it isn't, unless you specifically fall into the pre-23rd-July-2024 purchase category and choose that route.
We work through the actual numbers before you sell, not after — comparing the 12.5% and 20%-with-indexation routes where you're eligible, checking your sale price against the applicable circle rate, and mapping out exemption options under Sections 54, 54F, and 54EC so you know what's achievable before deadlines start running. Once the sale is done, we handle the ITR-2 filing, reconcile the TDS the buyer deducted, and make sure the capital gains schedule is filed correctly the first time.
From the date you acquired the property — generally the date of the purchase agreement or possession — to the date of sale. More than 24 months qualifies as long-term.
Only if you're a resident individual or HUF and the property was purchased before 23rd July 2024. In that case, you can choose between 12.5% without indexation or 20% with indexation, whichever results in lower tax. Property bought after that date is taxed only at 12.5% without indexation.
The tax department generally treats the higher of your actual sale price or the circle rate as your deemed sale consideration under Section 50C, so selling below the circle rate doesn't reduce your taxable gain in most cases.
Potentially, yes — by reinvesting the gain in another residential house under Section 54, in specified bonds under Section 54EC, or in a residential property from other asset sales under Section 54F, within the prescribed time limits.
The buyer deducts 1% TDS under Section 194-IA if the sale value is ₹50 lakh or more, and this shows up as credit in your Form 26AS. NRI sellers face a different, generally higher TDS rate under Section 195.
ITR-2, if you don't have business income, or ITR-3 if you do. Capital gains cannot be reported using ITR-1 or ITR-4.
Talk to Legal Dev and we'll run the calculation and map out your exemption options.