Capital gains on sale of immovable property

Selling land, a house, a flat or a shop? This guide explains how the gain is worked out, which rate applies, how it can lawfully be reduced, and what to do about TDS and filing. It reflects the law as of October 2026 under the Income-tax Act, 1961. The Income-tax Act, 2025 re-enacts these provisions under new section numbers, and we check the equivalent section for your year.

In short

Held for more than 24 months: long-term. Taxed at 12.5% without indexation.
Resident individual or HUF who bought land or a building before 23 July 2024: you may choose 20% with indexation if that gives lower tax.
Held for 24 months or less: short-term, taxed at your slab rates.
Tax can be saved by reinvesting in a house (sections 54 and 54F of the Income-tax Act, 1961, now sections 82 and 86 of the Income-tax Act, 2025), specified bonds (54EC, now 85) or agricultural land (54B, now 83), within the time limits.
Sales up to 31 March 2026 fall under the 1961 Act; sales from 1 April 2026 under the 2025 Act. The rules are the same; the section and form numbers are new, so both are given below.
The buyer deducts 1% TDS when the price is ₹50 lakh or more. A non-resident seller faces a much higher TDS.

Open a heading to read it.

1. Is the gain short-term or long-term?

For land, buildings and rights in them, the holding period is 24 months. If you transfer the property after more than 24 months from the date you acquired it, the gain is long-term; otherwise it is short-term.

Inherited or gifted property: your holding period includes the previous owner's, and your cost is the previous owner's cost.
Under-construction flat: the period generally runs from the date of allotment or the agreement, depending on the facts. Keep the allotment letter.
Rural agricultural land (outside the specified distance from a municipality) is not a capital asset, so no capital gains tax arises.

2. How the gain is calculated

Capital gain = Sale consideration, less cost of acquisition, less cost of improvement, less expenses on transfer.

Sale consideration: the price in the sale deed. If the stamp duty value is higher by more than the permitted tolerance (10%), the stamp duty value is treated as the consideration (section 50C, now section 78).
Cost of acquisition: purchase price plus stamp duty and registration paid. For property held on 1 April 2001, you may use fair market value on that date.
Cost of improvement: capital spending that adds to the asset, with bills. Routine repairs do not count.
Expenses on transfer: brokerage, legal fees and similar costs directly connected with the sale.

3. Rates, indexation and a worked example

Situation	Tax on the gain
Long-term, property acquired on or after 23 July 2024	12.5%, no indexation
Long-term, land or building acquired before 23 July 2024, resident individual or HUF	Lower of 12.5% without indexation and 20% with indexation
Long-term, other sellers (companies, firms, LLPs, non-residents)	12.5%, no indexation
Short-term (24 months or less)	Normal slab rates

Surcharge (capped at 15% for individuals and HUFs on long-term gains) and 4% cess are added.

Illustration. A flat bought in FY 2010-11 for ₹40 lakh (Cost Inflation Index 167) is sold after 23 July 2024, in FY 2024-25 (index 363), for ₹1.5 crore.
Option A: 12.5% × (150 − 40 = ₹110 lakh) = ₹13.75 lakh.
Option B: indexed cost = 40 × 363 ÷ 167 = ₹86.95 lakh; gain = ₹63.05 lakh; 20% = ₹12.61 lakh.
The seller pays the lower figure, ₹12.61 lakh, before surcharge and cess. Transfer expenses are ignored for simplicity.

4. Ways to reduce or defer the tax (sections 54, 54F, 54EC, 54B; now 82, 86, 85, 83)

Section: 1961 Act (2025 Act)	Applies to	What you must do
54 (now 82)	Long-term gain on a residential house	Reinvest the gain in a residential house in India: buy 1 year before or 2 years after the sale, or construct within 3 years. Exemption is capped at ₹10 crore. If the gain is up to ₹2 crore, two houses can be bought, once in a lifetime.
54F (now 86)	Long-term gain on any asset other than a house (plot, shop, land)	Reinvest the net sale consideration in a residential house (same time limits). Cost up to ₹10 crore counts. You must not own more than one other residential house on the date of transfer. Investing only part gives a proportionate exemption.
54EC (now 85)	Long-term gain on land or building	Invest the gain in notified bonds (for example, NHAI or REC) within 6 months, up to ₹50 lakh. The bonds are locked in for 5 years.
54B (now 83)	Agricultural land used for farming by you or your parents for 2 years before the sale	Buy other agricultural land within 2 years.

Capital Gains Account Scheme: if you have not bought or built by the due date for filing your return, deposit the unused amount in this scheme before that date, or the exemption can be lost. Selling the new house within 3 years withdraws the exemption.

5. TDS when you sell (and when you buy)

Resident seller: the buyer deducts 1% TDS if the consideration or the stamp duty value is ₹50 lakh or more, and pays it with a challan-cum-statement: Form 26QB under section 194-IA of the 1961 Act for payments before 1 April 2026, and Form 141 under section 393(1) of the 2025 Act from that date. Ask for the certificate (Form 16B, now Form 132) and check that the credit appears in your tax statements.
Non-resident seller: the buyer deducts TDS (section 195, now section 393(2)) at the rates in force for the type of gain, which for long-term gains is 12.5% plus surcharge and cess, on the whole consideration. A lower-deduction certificate from the tax officer can reduce it. Repatriating the proceeds needs certification by a Chartered Accountant (Form 15CB, now Form 146).
Buyer's tax: if the stamp duty value exceeds the price by more than the tolerance, the difference can be taxed in the buyer's hands as income.

6. Special situations

Joint development agreements: for individuals and HUFs, the gain is generally taxed in the year the completion certificate is issued, not when the agreement is signed, subject to conditions (section 45(5A), now section 67(14)).
Compulsory acquisition: gain is taxed in the year compensation is received, with specific relief provisions.
Co-owners: each owner computes their own gain on their own share.
Land held as stock-in-trade by a business: profit is business income, not capital gains.
Loss on property: a long-term capital loss can be set off only against long-term capital gains and carried forward for 8 years if the return is filed on time.

7. Filing and records: what to keep

Sale deed and purchase deed, with stamp duty and registration receipts
Payment proofs and bank statements for the original purchase
Bills for improvements, and home-loan statements
Stamp duty valuation, brokerage and legal invoices
Form 26QB or Form 141, the TDS certificate (Form 16B or Form 132), and your annual tax statement (Form 26AS and the AIS, now Form 168)
Proof of reinvestment (new deed, construction bills, bond certificate, deposit receipt)

The gain is reported in the capital gains schedule of your return. Advance tax may be payable on the gain, so plan before the sale, not after.

8. Common mistakes

Assuming "20% with indexation" for a property bought after 23 July 2024. The option is not available.
Counting 24 months from the wrong date.
Missing the Capital Gains Account Scheme deposit before the return due date.
Claiming section 54F (now 86) while owning more than one other house.
Ignoring the stamp duty value when the deed price is lower.
Selling the new house within 3 years of buying it.
No bills for improvements, so the cost cannot be claimed.

General information as of October 2026, not advice on your facts. Limits and rates change; confirm them for your year before acting.

Capital gains on sale of immovable property

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