Selling a property is often the biggest financial transaction most people make, and the tax bill that follows is where a lot of sellers get an unpleasant surprise. Capital gains tax on property isn’t optional, and getting the calculation wrong, or missing an exemption you were entitled to, can cost lakhs. Here’s what actually applies for FY 2025-26 (AY 2026-27).
Short-Term vs Long-Term: The 24-Month Rule
Property held for more than 24 months before sale qualifies as a long-term capital asset. Sell before that and it’s short-term. This single date determines which tax regime applies, so the exact purchase and sale dates matter more than people usually realise.
How Long-Term Capital Gains Are Taxed
For property sold on or after 23 July 2024, long-term capital gains are taxed at a flat 12.5%, without indexation.
If the property was purchased before 23 July 2024, you get a grandfathering option: calculate your tax both ways, 12.5% without indexation, or 20% with indexation (adjusting your purchase cost for inflation using the Cost Inflation Index), and pay whichever works out lower. For older properties, the indexed calculation can still come out cheaper, so it’s worth running both numbers rather than defaulting to the newer rate.
How Short-Term Capital Gains Are Taxed
Sell within 24 months and the gain is added to your total income and taxed at your applicable slab rate, up to 30% for higher income brackets. There’s no flat concessional rate here, which makes short-term property sales considerably more expensive from a tax standpoint.
How the Gain Is Actually Calculated
At its simplest: sale price, minus purchase cost (indexed, if you’ve chosen that option), minus cost of any improvements made to the property, minus transfer expenses like brokerage. What’s left is your capital gain.
Exemptions Worth Knowing
- Section 54 – reinvest the gain in another residential property (within specified timelines) and the gain can be exempt, up to certain limits.
- Section 54EC – invest the gain in specified capital gains bonds (NHAI, REC and similar) within six months, exempt up to ₹50 lakh.
- Section 54F – applies when you’re selling a long-term asset other than a residential house and reinvesting the full sale proceeds into a residential property.
Each of these has strict conditions and timelines. Missing a deadline by even a few days can mean losing the exemption entirely, this is not a place to leave until the last minute.
TDS on Property Sale
Buyers are required to deduct TDS on property transactions above specified thresholds before paying the seller. For NRI sellers, the TDS rate is significantly higher than for resident sellers, and is deducted on the sale value, not just the gain, unless a lower-deduction certificate has been obtained in advance. If you’re an NRI selling property in India, this is worth planning for before the sale, not after.
Common Mistakes Sellers Make
- Assuming indexation still applies automatically. For property acquired after 23 July 2024, it doesn’t, only the flat 12.5% rate applies.
- Missing the reinvestment deadline for Section 54 or 54EC exemptions.
- Not accounting for improvement costs that could have reduced the taxable gain, keep receipts and records.
- Ignoring TDS obligations as an NRI seller until the buyer withholds a much larger amount than expected.
Getting This Right Before You Sign
The right exemption strategy and the correct tax route (12.5% vs indexed 20%, where applicable) can make a real difference to what you actually keep from a property sale. This is worth confirming before the sale agreement is signed, not after. Get in touch with our team for a capital gains calculation specific to your property and situation.
Frequently Asked Questions
Do I have to pay capital gains tax if I reinvest in another property?
You may be eligible for exemption under Section 54, subject to conditions and reinvestment timelines. It’s not automatic, it needs to be claimed correctly in your return.
Is indexation completely gone for property?
No. It’s removed for property acquired on or after 23 July 2024. For property bought before that date, you can still choose the indexed 20% calculation if it results in lower tax.
What happens if I sell inherited property?
The holding period is calculated from when the original owner acquired it, not from when you inherited it, and the original owner’s cost is typically used for calculating the gain.
How much TDS applies for NRI sellers?
It’s significantly higher than for resident sellers and applies on the full sale value unless a lower-deduction certificate is obtained from the tax department in advance.
