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Capital Gains on Property in India: How It Is Taxed Under the Income Tax Act 2025

Renish Mithani's profile photo Renish Mithani
6 min read
Reviewed by Rahul Godeshwar Last reviewed 8 October 2026 Data verified 8 October 2026
Income Tax Capital Gains Property Section 112 Section 54 LTCG STCG Indexation

When you sell a house, flat, plot of land, or any property for more than what you paid for it, the profit is a capital gain — and it is taxable under the Income Tax Act 2025. The tax you pay depends on the holding period and the exemptions you can claim by reinvesting the proceeds.

Long-term capital gains (LTCG) vs short-term capital gains (STCG)

The first question is how long you held the property.

Short-term capital gain: property held for 2 years or less before sale. STCG is added to your total taxable income and taxed at your normal slab rate — 5%, 10%, 15%, 20%, or 30% depending on income.

Long-term capital gain: property held for more than 2 years. LTCG is taxed at a flat 20% with the benefit of indexation — the cost of acquisition is increased to account for inflation, which reduces the taxable gain.

The 2-year holding period for property is different from the 1-year period that applies to listed equity shares and equity mutual funds.

How to calculate LTCG on property — indexation explained

Indexation adjusts your purchase price using the Cost Inflation Index (CII) published by the CBDT each year. This increases your cost base and reduces the capital gain that is taxed.

Indexed cost of acquisition = Purchase price × (CII at year of sale ÷ CII at year of purchase)

For example:

  • You bought a flat in Bangalore in FY 2012-13 for ₹40 lakh
  • CII for FY 2012-13: 200
  • You sell it in FY 2025-26 for ₹1.2 crore
  • CII for FY 2025-26: 363 (assumed; the CBDT publishes this each year)
  • Indexed cost: ₹40,00,000 × (363 ÷ 200) = ₹72,60,000
  • Long-term capital gain: ₹1,20,00,000 − ₹72,60,000 = ₹47,40,000

The tax on this gain at 20%: ₹47,40,000 × 20% = ₹9,48,000

Without indexation, the gain would have been ₹80 lakh — indexation saved you ₹6,60,000 of taxable gain.

Cost Inflation Index (CII) — recent years

Financial Year CII
FY 2019-20 289
FY 2020-21 301
FY 2021-22 317
FY 2022-23 331
FY 2023-24 348
FY 2024-25 363

Check the current CII on the income tax department website before filing your return.

Short-term capital gains on property

If you sell property within 2 years of buying it, the gain is treated as short-term. STCG is added to your total income from all sources and taxed at the slab rates that apply to your total income.

Example — STCG on property sold within 2 years:

You bought a plot in Pune for ₹30 lakh in June 2024 and sold it in March 2026 (about 21 months) for ₹45 lakh.

  • Gain: ₹45,00,000 − ₹30,00,000 = ₹15,00,000
  • This ₹15,00,000 is added to your other income
  • If your total taxable income (including this) is ₹12 lakh, the ₹15 lakh gain falls in the 30% slab
  • STCG tax: ₹15,00,000 × 30% = ₹4,50,000
  • Plus cess at 4%: ₹18,000
  • Total STCG tax: ₹4,68,000

Note that there is no indexation benefit for STCG and no basic exemption for STCG on property — the full gain is taxed regardless of amount.

Exemptions — Sections 54 and 54F

The Income Tax Act 2025 offers two main exemptions that can reduce or eliminate your capital gains tax on property.

Section 54 — reinvestment in a house property

If you sell a house or flat and buy or construct another house property, you can claim exemption under Section 54.

Conditions:

  • The property you sell must be a house or flat — not vacant land alone
  • You must buy another house property within 1 year before or 2 years after the date of sale, OR construct a house property within 3 years after that date
  • The new property must be in India
  • You must not own more than one house property on the date of sale, other than the one being sold (there are exceptions)

How much is exempt:

  • If the entire sale proceeds are reinvested, the entire capital gain is exempt
  • If only part of the proceeds is reinvested, the proportion of the gain equal to the proportion reinvested is exempt
  • The remaining capital gain is taxed

Example — full exemption:

You sell a flat for ₹80 lakh (held for 5 years, cost ₹25 lakh, LTCG ₹55 lakh). You buy another flat for ₹80 lakh within 2 years.

  • Capital gain: ₹55,00,000
  • Amount reinvested: ₹80,00,000
  • Since full proceeds are reinvested, the entire ₹55 lakh is exempt under Section 54

Example — partial exemption:

You sell a flat for ₹1 crore (LTCG ₹70 lakh) and buy another flat for ₹60 lakh within 2 years.

  • Amount of proceeds reinvested: ₹60 lakh
  • Proportion exempt: 60%
  • Exempt gain: ₹70,00,000 × 60% = ₹42,00,000
  • Taxable gain: ₹70,00,000 − ₹42,00,000 = ₹28,00,000
  • LTCG tax at 20%: ₹28,00,000 × 20% = ₹5,60,000

Section 54F — sale of any asset, reinvestment in house property

Section 54F applies when you sell any asset other than a house property — most commonly a plot of land — and buy a house property.

Conditions:

  • The asset sold must not be a house or flat
  • You must buy or construct a house property within the same time limits as Section 54
  • You must not own more than one house property on the date of sale

Important distinction: Unlike Section 54, if only part of the sale proceeds is reinvested, the exemption is calculated on the net consideration (sale price minus cost of acquisition), not on the capital gain itself. This makes Section 54F calculation different and sometimes less favourable.

Capital gains on jointly owned property

If a property is owned jointly, each co-owner is taxed on their share of the capital gain separately. Each co-owner can claim their own Section 54 or 54F exemption based on their share of the proceeds.

For example, if a property sold for ₹1 crore is owned equally by two siblings, each has a capital gain of ₹25 lakh (after accounting for their share of cost) to declare — and each can separately reinvest their ₹50 lakh share and claim exemption.

Capital gains and the new tax regime

The new tax regime (default from FY 2026-27) does not change the capital gains rates on property. LTCG on property remains at 20% with indexation, and STCG is taxed at slab rates, under both the old and new regimes.

However, the rebate under Section 87A (which can bring total tax to zero for income up to ₹12 lakh) does not apply to capital gains. Capital gains are excluded from the total income that qualifies for the Section 87A rebate.

Common mistakes

Mistake 1 — forgetting the 2-year holding period. Many taxpayers expect LTCG treatment on property sold after 12 months. Property requires a 2-year holding period. Selling at month 23 means STCG treatment at slab rates, which can be significantly higher than 20%.

Mistake 2 — missing the Section 54 reinvestment window. You have 1 year before or 2 years after the sale to buy another house. If you miss this window, the full capital gain becomes taxable. Planning the reinvestment before the sale is important.

Mistake 3 — not accounting for home loan repayment in cost. If you used a home loan to buy the property, the interest paid during construction can sometimes be added to the cost of acquisition. Not claiming this increases your capital gain unnecessarily.

Mistake 4 — selling a plot of land and claiming Section 54. Section 54 applies only to house or flat sales. If you sell a plot of land, Section 54 does not apply — you may be able to claim Section 54F if you buy a house with the proceeds, but not Section 54.

Mistake 5 — assuming indexation always benefits you. Indexation increases your cost base but the LTCG rate of 20% may still be higher than STCG at slab rates for low-income taxpayers. Compare both scenarios before assuming LTCG is always better.

Frequently asked questions

What is the holding period for LTCG on property in India?

The holding period for long-term capital gains on property is more than 2 years (24 months). Listed equity shares and equity mutual funds have a 1-year holding period for LTCG.

How is capital gain on property calculated if I have a home loan?

Your cost of acquisition includes the purchase price. The interest paid on the home loan during construction can sometimes be added to the cost, subject to conditions. The outstanding home loan amount at the time of sale does not reduce the capital gain — only the original cost and improvements count.

Do I pay tax if I sell my self-occupied house?

If you sell a self-occupied house at a profit, the gain is still a capital gain and is taxable as LTCG (if held more than 2 years) or STCG (if held 2 years or less). There is no separate exemption for selling your only residence — only the Sections 54 and 54F reinvestment exemptions apply.

What happens if I cannot reinvest the full proceeds in a new house?

If you reinvest only part of the sale proceeds, only the proportional amount of the capital gain is exempt. The remaining gain is taxed. If you cannot reinvest at all, the full capital gain is taxable.

Can I claim both Section 54 and Section 54F for the same sale?

No. Section 54 applies only to the sale of house or flat property. Section 54F applies to the sale of any other asset (primarily vacant land) when the proceeds are reinvested in a house. They are mutually exclusive based on the asset sold.

Disclosure: FinWiz24 is an independent editorial publication. We do not earn commission from any tax-related products or services discussed on this page.

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