Capital Gains Tax on Property Sale: 12.5%, Section 54 and TDS

A flat bought in 2014 for ₹60 lakh and sold this year for ₹1.3 crore can leave its owner with a tax bill anywhere from nil to about ₹9 lakh. Which end you land at depends on three choices: how you compute the gain, whether you reinvest, and how quickly you act after the sale. The rules on capital gains tax on property sale changed sharply in July 2024 and the section numbers changed again in April 2026, so older advice you've read may be wrong on both counts.

Short-term or long-term: the 24-month line

Land, buildings and flats held for more than 24 months are long-term capital assets. Sell earlier and the gain is short-term, added to your income and taxed at your slab rate. The holding period runs from the date you acquired the property. For an under-construction flat, that's commonly taken as the allotment date; keep the allotment letter.

For inherited or gifted property, the previous owner's holding period and cost are counted too.

Capital gains tax on property sale: 12.5% or 20% with indexation

For transfers on or after 23 July 2024, long-term gains on property are taxed at 12.5% without indexation, plus surcharge where applicable and 4% cess. Before that date the rate was 20% with indexation, which adjusts your purchase price for inflation using the Cost Inflation Index (CII).

After protests that the change would raise tax on older homes, Parliament added a safeguard. A resident individual or HUF selling land or a building acquired before 23 July 2024 can compute tax both ways and pay the lower amount:

• 12.5% on the gain without indexation, or
• 20% on the gain with indexation.

The option isn't available to NRIs, companies or firms. Property bought on or after 23 July 2024 is taxed at 12.5% only.

Worked example: which method wins

Take the flat bought in 2014-15 for ₹60 lakh, and assume it was sold in 2025-26 for ₹1.3 crore. The CII was 240 in 2014-15 and 376 in 2025-26. (For a 2026-27 sale, use the index CBDT notifies for that year.)

Indexation saves ₹1.55 lakh here. Generally, the older the purchase and the smaller the price rise, the more indexation helps. A flat that has tripled or quadrupled in value over a short span often does better at 12.5%. Always run both.

Add stamp duty, registration and brokerage to your cost, and the cost of documented improvements. Keep the receipts; without them the tax officer can disallow the claim.

If the stamp duty value of the flat is more than 110% of your sale price, the stamp duty value is treated as the sale price for tax. Selling well below the circle rate usually costs more tax than it saves.

Section 54: reinvest in another home

Under the 1961 Act this was Section 54; under the Income-tax Act, 2025 it's Section 82, with the same substance. If you sell a residential house held long term and buy or build another residential house in India, the gain is exempt to the extent you reinvest it.

• Buy within one year before or two years after the sale, or construct within three years.
• The exemption is capped at ₹10 crore of gain.
• Once in a lifetime, if the gain is ₹2 crore or less, you can invest in two houses instead of one.
• Sell the new house within three years and the exemption is withdrawn.

What people get wrong: waiting until they find the right flat and missing the filing deadline. If you haven't reinvested by the due date of your return, deposit the unused gain in the Capital Gains Account Scheme at an authorised bank before that date. Otherwise the exemption is lost, even if you buy a flat a month later.

If you are selling a plot or commercial property rather than a house, the equivalent relief (old Section 54F, now Section 86) requires you to reinvest the full net sale price, not just the gain, and you shouldn't own more than one other house on the date of sale.

Section 54EC: capital gain bonds

Old Section 54EC, now Section 85, covers gains from any land or building, residential or not. Invest the gain within six months of the sale in specified bonds, currently issued by NHAI, REC, PFC and IRFC, and that amount is exempt.

• Maximum investment: ₹50 lakh.
• Lock-in: five years. The bonds can't be sold or pledged.
• Interest is taxable every year.

With a gain of ₹70 lakh, putting ₹50 lakh into these bonds leaves ₹20 lakh taxable. It's a useful tool when you don't want another house but can't afford the tax on a large gain.

TDS when you buy or sell: what the buyer must deduct

This part is the buyer's job, but sellers need to know it because it affects the cash they receive.

Resident seller: 1%

When the consideration is ₹50 lakh or more, the buyer deducts 1% TDS and pays it to the government (old Section 194-IA, now part of the TDS table in Section 393). It's calculated on the higher of the sale price and the stamp duty value. Where there are several buyers or sellers, the ₹50 lakh threshold is tested on the total price, not each person's share. The buyer files the challan-cum-statement online using PANs, deposits the TDS within 30 days from the end of the month of deduction and gives the seller the TDS certificate.

NRI seller: much higher, and a change from 1 October 2026

If the seller is a non-resident, TDS applies on the capital gains portion at 12.5% for long-term gains (plus surcharge and cess), or 30% for short-term gains, and there's no ₹50 lakh threshold. Until 30 September 2026 the buyer must hold a TAN. From 1 October 2026, resident individuals and HUFs buying from an NRI can deposit this TDS with their PAN instead. Companies and firms still need a TAN.

An NRI seller whose actual tax is lower, because of reinvestment or a small gain, should apply for a lower-deduction certificate before the sale deed. Without it, the buyer must deduct at the full rate and the seller waits for a refund.

A seller's checklist

1. Dig out the purchase agreement, stamp duty receipt and improvement bills.
2. Work out tax both ways if you bought before 23 July 2024.
3. Decide within weeks whether you'll use Section 54 or 54EC; the six-month bond window closes fast.
4. Check the TDS appears against your PAN in your annual tax statement (Form 26AS or AIS) before you file.
5. Report the sale in your return even if the whole gain is exempt.

If you plan to reinvest in a new home to save tax, compare prices on the Mumbai property rates or Pune property rates pages, see projects in Mumbai, and check the purchase-side costs with the Maharashtra stamp duty calculator. If you're selling rather than buying, you can post your property on IndiProp.

Frequently asked questions

What is the capital gains tax on selling a flat in 2026?

If you held it for more than 24 months, the gain is taxed at 12.5% without indexation, plus cess and any surcharge. Resident individuals and HUFs selling property bought before 23 July 2024 can instead pay 20% with indexation if that works out lower.

How can I avoid capital gains tax on property sale?

Reinvest the gain in another residential house in India under Section 54 (Section 82 of the 2025 Act), or invest up to ₹50 lakh in capital gain bonds under Section 54EC (now Section 85) within six months. If you haven't reinvested by your return's due date, park the money in the Capital Gains Account Scheme.

Who deducts TDS on the sale of a property?

The buyer. For a resident seller it's 1% when the price is ₹50 lakh or more. For an NRI seller it's at the capital gains rate with no threshold, and from 1 October 2026 resident individual buyers can deposit it using their PAN instead of a TAN.

Can an NRI use the 20% with indexation option?

No. The option to choose 20% with indexation for property bought before 23 July 2024 is available only to resident individuals and HUFs. NRIs pay 12.5% without indexation on long-term gains.

Sources: Income Tax Department: Exemptions from capital gains · Income Tax Department: Section 54EC · TaxGuru: Long-term capital gain on immovable properties after Budget 2024 · TaxGuru: TAN requirement removed to ease property purchase from non-residents · Income-tax Act, 2025 (Wikipedia)