Capital Gains Tax on Property Sale in India: 2026 Guide

Capital gains tax is one of the most significant financial considerations when selling a property in India, yet many sellers approach the sale without fully understanding their tax exposure. Getting this wrong can mean an unpleasant surprise when you file your income tax return — or, worse, a demand notice years later. This guide explains how capital gains tax on property works in India, what has changed recently, and what you should confirm with a Chartered Accountant before completing your sale.

What Is Capital Gain on a Property Sale?

When you sell a property for more than what you paid for it (including acquisition costs), the difference is called a capital gain. This gain is treated as income under the Income Tax Act and is subject to tax. The tax treatment depends primarily on how long you held the property before selling — which determines whether the gain is classified as short-term or long-term.

The key threshold for residential property in India is 24 months. If you sell within 24 months of acquiring the property, the gain is a Short-Term Capital Gain (STCG). If you sell after holding it for more than 24 months, it is a Long-Term Capital Gain (LTCG). Each category is taxed differently.

Short-Term Capital Gains: How They Are Taxed

Short-term capital gains from the sale of a property are added to your total income for the financial year and taxed at your applicable income tax slab rate. There is no special flat rate for STCG on property — unlike STCG on equity, which has its own rate. This means that if you are in the 30% tax bracket, your STCG on a property sold within 24 months of purchase will effectively be taxed at 30% plus applicable surcharge and cess.

The gain is calculated as:

• Sale Price minus Cost of Acquisition (what you originally paid, including stamp duty, registration, and brokerage paid at the time of purchase) minus Cost of Improvement (documented capital expenditure on improvements, not routine maintenance) minus Transfer Expenses (legal fees, brokerage on sale, etc.)

Short-term gains do not benefit from indexation. If you renovated heavily or purchased at a high price and are selling quickly, you may have a smaller gain or even a loss — but losses on property can only be set off against other capital gains, not against salary income.

Long-Term Capital Gains: Rates and Indexation in 2026

Long-term capital gains on property have been subject to significant changes in recent Union Budgets, particularly regarding the indexation benefit. The rules around indexation — which allowed sellers to inflate their cost of acquisition using a government-notified cost inflation index (CII) to reduce the taxable gain — were modified in the 2024 Budget. The position as it stands in 2026 is as follows:

• For properties acquired before 23 July 2024, sellers can choose between paying LTCG at 20% with indexation or at 12.5% without indexation — whichever results in a lower tax liability. This option applies to resident individuals and HUFs.
• For properties acquired on or after 23 July 2024, LTCG is taxed at 12.5% without indexation.
• In all cases, applicable surcharge and health and education cess (4%) are added on top of the base tax rate.

Important: These rules are subject to amendment in future Budgets. Confirm the current position with a Chartered Accountant before finalising your sale, especially if the acquisition date is close to the July 2024 threshold or if you are computing the tax impact on a large transaction.

TDS on Property Sale: What Sellers Must Know

The buyer is responsible for deducting Tax Deducted at Source (TDS) on property transactions above certain thresholds. As the seller, you need to be aware of this because it directly affects the net amount you receive at the time of the sale.

• Resident sellers: Under Section 194-IA of the Income Tax Act, if the sale consideration is ₹50 lakh or more, the buyer must deduct TDS at 1% of the total sale price before making payment to you. The buyer deposits this with the government and gives you Form 16B as proof. You claim this TDS credit when you file your income tax return.
• NRI sellers: Transactions involving an NRI seller attract TDS at significantly higher rates — broadly in the range of 12.5% to 20% of the sale consideration (not just the gain), depending on whether the property is long-term or short-term, plus applicable surcharge and cess. This can result in a very large TDS deduction even if the actual taxable gain is much smaller. NRI sellers should proactively apply for a Lower Deduction Certificate under Form 13 from the Income Tax Department, which allows TDS to be deducted at the actual tax payable rate rather than the default high rate.
• PAN requirement: Both buyer and seller must have PAN (Permanent Account Number). The buyer uses Form 26QB to deposit TDS online. If either party does not have a PAN, the TDS rate increases significantly.

Computing the Taxable Gain: A Practical Example

To understand what you actually owe, it helps to walk through the calculation. Consider a simplified example (figures are illustrative, not advice):

• You bought a flat in 2016 for ₹45 lakh (including stamp duty and registration).
• You spent ₹5 lakh on documented improvements (new flooring, kitchen upgrade — with invoices).
• You are selling in 2026 for ₹90 lakh.
• Your cost of acquisition (for the 20% with indexation option) would be indexed using the CII for the respective years. Your CA will apply the relevant CII values.
• Under the 12.5% without-indexation option, the gain is ₹90L − ₹45L − ₹5L = ₹40 lakh. Tax at 12.5% = ₹5 lakh (plus surcharge and cess).
• Under the 20% with-indexation option, the indexed cost reduces the gain and the resulting tax may be higher or lower depending on the specific CII values — your CA will model both.

This is a simplified illustration. Your actual calculation may differ based on transfer expenses, the exact acquisition date, applicable surcharge bracket, and whether you qualify for any exemptions under Sections 54, 54F, or 54EC (discussed separately).

State-Level Taxes and Registration Costs

Capital gains tax is a central government levy. In addition, the buyer pays stamp duty and registration charges to the state government — these vary by state, typically ranging from 3% to 8% of the sale value. As the seller, you do not pay stamp duty, but you should be aware of it because it affects what the buyer calculates as total acquisition cost. In some transactions, buyers ask sellers to adjust the sale price to accommodate their stamp duty liability — understanding the total cost picture helps you negotiate more effectively.

Can I set off a capital loss from selling one property against gains from another property?

Yes, under Indian tax rules, capital losses can be set off against capital gains of the same type in the same financial year. A long-term capital loss can be set off only against long-term capital gains (not short-term). A short-term capital loss can be set off against both short-term and long-term capital gains. Losses that cannot be fully set off in the current year can be carried forward for up to 8 assessment years to set off against future capital gains. Capital losses from property, however, cannot be set off against salary income or other income heads.

Do I need to pay advance tax on capital gains from a property sale?

If your total tax liability for the year (including capital gains tax on the property sale) exceeds ₹10,000, you are required to pay advance tax in instalments during the financial year in which the sale occurs. Failing to pay advance tax on time attracts interest under Sections 234B and 234C of the Income Tax Act. If you sell a property mid-year and the gain is significant, estimate your tax liability early and make the advance tax payment by the relevant instalment deadline. Your CA can help you compute the correct amounts and due dates.

What happens if the buyer deducts less TDS than required?

The legal responsibility to deduct and deposit TDS under Section 194-IA is entirely the buyer's. However, if the buyer deducts less than required or fails to deposit it, the Income Tax Department can issue a demand to the buyer. As the seller, you are not directly penalised for the buyer's failure to deduct TDS, but you should still declare the full sale consideration and compute the correct capital gains in your return. Relying on incorrect or missing TDS amounts as a basis for not disclosing the transaction is not a safe approach.

Is the stamp duty value used instead of the actual sale price for computing capital gains?

Yes, under Section 50C of the Income Tax Act, if the actual sale consideration is lower than the stamp duty value (circle rate or guidance value) used by the state registration authority, the stamp duty value is deemed to be the sale consideration for capital gains computation. This is an important provision that catches underreporting of sale prices. There is a tolerance threshold — if the actual price is within a certain percentage of the stamp duty value, the actual price is used. Confirm the current tolerance limit with a CA; it has been revised in recent years.

Selling your property is a significant financial event, and getting the tax side right matters as much as finding the right buyer. When you are ready to sell, list your property for free on BookPropertyVisit — no upfront cost, no brokerage until the property is sold. The platform connects you with verified buyers and handles the site visit logistics. Learn more about how selling works on BookPropertyVisit. For tax questions specific to your situation, always consult a qualified Chartered Accountant.