Capital Gains Tax on Property Sale: How to Calculate & Save

When you sell a property (house, land, or commercial space) in India, the profit is taxed as capital gains. The tax rate and exemption options depend on how long you held the property. This guide explains STCG vs LTCG, the calculation with indexation, and how to save tax using Section 54 and 54F exemptions.

Budget 2024 Update: From FY 2024-25, LTCG on property is taxed at 12.5% without indexation (reduced from 20% with indexation). However, for properties acquired before 23 July 2024, you can choose the lower of: (a) 20% with indexation, or (b) 12.5% without indexation.

Short-Term vs Long-Term Capital Gains

*For properties acquired before 23 July 2024, you can choose between 20% with indexation or 12.5% without indexation — whichever is lower.

How to Calculate Capital Gains on Property

For Long-Term Capital Gains (LTCG)

Option A — Without Indexation (New Rule):

LTCG = Sale Price − Purchase Price − Improvement Cost − Transfer Expenses
Tax = LTCG × 12.5%

Option B — With Indexation (for properties acquired before 23-07-2024):

Indexed Cost = Purchase Price × (CII of Sale Year ÷ CII of Purchase Year)
LTCG = Sale Price − Indexed Cost − Indexed Improvement Cost − Transfer Expenses
Tax = LTCG × 20%

Choose whichever gives lower tax.

Cost Inflation Index (CII) — Recent Years

Example Calculation

Scenario: Amit bought a flat in Mumbai in March 2015 for ₹50,00,000. He sells it in January 2026 for ₹1,20,00,000. Registration and brokerage costs: ₹2,00,000.

Option A — 12.5% without indexation:

LTCG = ₹1,20,00,000 − ₹50,00,000 − ₹2,00,000 = ₹68,00,000
Tax = ₹68,00,000 × 12.5% = ₹8,50,000

Option B — 20% with indexation:

Indexed Cost = ₹50,00,000 × (377 ÷ 254) = ₹74,21,260
LTCG = ₹1,20,00,000 − ₹74,21,260 − ₹2,00,000 = ₹43,78,740
Tax = ₹43,78,740 × 20% = ₹8,75,748

Result: Option A (₹8,50,000) is slightly lower — Amit should choose 12.5% without indexation.

For Short-Term Capital Gains (STCG)

STCG = Sale Price − Purchase Price − Improvement Cost − Transfer Expenses
Tax = Added to your total income and taxed at applicable slab rate

How to Save Capital Gains Tax: Exemptions

Section 54 — Reinvest in Residential Property

If you cannot reinvest immediately: Deposit the capital gains in Capital Gains Account Scheme (CGAS) at a bank before the ITR filing due date. Use it within the allowed time frame.

Section 54F — Reinvest Sale Proceeds of Non-Residential Asset

Section 54EC — Invest in Specified Bonds

Step-by-Step: How to Report Property Sale in ITR

1. Calculate capital gains using the formulas above
2. Choose ITR-2 (salaried with capital gains) or ITR-3 (business income with capital gains)
3. In the ITR, go to Schedule CG (Capital Gains)
4. Under "Income from sale of immovable property":
   • Enter sale date, sale price, purchase date, purchase price
   • Enter indexed cost (if using indexation method)
   • Enter exemption claimed under Section 54/54F/54EC
5. Pay advance tax if capital gains exceed ₹10,000 — otherwise interest under 234B/234C applies
6. File ITR by the due date (usually 31 July)

TDS on Property Sale — Section 194-IA

If the property sale value exceeds ₹50 lakh, the buyer must:

• Deduct TDS at 1% of the sale consideration
• Deposit TDS using Form 26QB within 30 days
• Issue Form 16B to the seller

The seller can claim this TDS credit while filing ITR.

Important Tips

1. Keep all purchase documents safe — sale deed, registration receipt, improvement bills, brokerage receipts
2. Compare both tax options for pre-July 2024 properties — indexation vs flat 12.5%
3. Use CGAS if you can't reinvest immediately — deposit before ITR due date to claim Section 54 exemption
4. Don't sell the new property within 3 years — or the exemption will be reversed
5. Pay advance tax on time — capital gains from property sale can attract interest if advance tax is not paid

Frequently Asked Questions

Is capital gains tax applicable on inherited property?

Yes, when you sell an inherited property, capital gains tax applies. The cost of acquisition is what the previous owner paid, and the holding period includes the previous owner's period.

Can I buy two properties to save capital gains tax?

Under Section 54, you can claim exemption for one residential house only. However, if the capital gains are up to ₹2 crore, you can opt to buy two houses (this option can be used only once in a lifetime).

What if I sell property and invest in another city?

Yes, you can buy the new property in any city in India. There is no restriction on location.

Is stamp duty value or actual sale price used for tax?

If the actual sale price is less than the stamp duty value (circle rate), the stamp duty value is considered as the sale price for tax purposes under Section 50C.

What is the Capital Gains Account Scheme (CGAS)?

CGAS allows you to park capital gains in a designated bank account if you cannot immediately reinvest. You must use the funds within the allowed timeframe (2/3 years). Open the account before the ITR filing due date.

Do NRIs pay different capital gains tax on property?

NRIs pay the same capital gains tax rates. However, the buyer must deduct TDS at 20% (not 1%) for LTCG on property sold by NRIs. NRIs can claim exemptions under Section 54 but must reinvest in India.

How are joint property sales taxed?

Each co-owner reports their share of capital gains in their individual ITR. The exemption under Section 54 is available to each co-owner individually.

This guide is for informational purposes only and is not affiliated with the Income Tax Department of India. Verify details on the official Income Tax portal. Tax laws change frequently — consult a qualified CA for personalized advice.