Capital Gains Tax on Selling Property in India, Explained Simply

A capital gain is, broadly, what you receive from the sale minus what the property cost you, after allowable deductions. The first question is how long you owned it.

• Short-term: property held for 24 months or less. The gain is added to your other income for the year and taxed at your normal slab rates.
• Long-term: property held for more than 24 months. The gain is taxed at a separate capital-gains rate and can qualify for the reinvestment exemptions described below.

The holding period usually runs from when you acquired the property to when you sell it. If you inherited the property, or received it as a gift from a relative, the previous owner's period of ownership generally counts, and so does their original cost. Our guide to inherited property transfer covers the ownership paperwork. For property that has been in the family for a very long time, special rules decide the starting cost, so ask your CA.

One more thing surprises sellers: the sale value used for tax may not be the price you agreed. If the sale is registered below the government's guidance value, Section 50C allows the guidance value to be treated as your sale price, subject to a tolerance margin. Our guide to guidance value and market value explains how guidance values work.

The July 2024 Budget changed how long-term gains on property are taxed. At the time of writing:

• Long-term capital gains on property are taxed at 12.5% without indexation, plus the applicable surcharge and cess.
• For property acquired before 23 July 2024, resident individuals and HUFs (Hindu Undivided Families) may choose the lower of 12.5% without indexation or 20% with indexation.

Indexation means raising your original cost to account for inflation, using the Cost Inflation Index that the government notifies for each financial year. On property bought long ago, where prices have not run far ahead of inflation, indexation can lift your cost considerably and shrink the taxable gain, even at the higher rate. On property bought recently, or where prices rose much faster than inflation, the 12.5% calculation often works out lower. The only way to know is to calculate both, which is exactly what a CA will do.

This choice is written for resident individuals and HUFs. If you are a non-resident Indian, don't assume it applies to you; our guide for NRIs selling property in India covers the separate TDS and repatriation rules. Surcharge depends on your total income and cess is added on top, so your effective rate will be somewhat higher than the headline figure.

Your taxable gain is not simply the sale price minus the purchase price. The law lets you deduct three kinds of cost, and sellers often under-claim because they no longer have the papers.

1. Cost of acquisition: what you paid for the property, generally including the stamp duty, registration charges and brokerage you paid when you bought it.
2. Cost of improvement: capital spending that added to the property, such as building a house on the plot, adding a floor or putting up a compound wall. Routine repairs, painting and maintenance generally don't count.
3. Transfer expenses: costs directly tied to the sale, such as the brokerage you pay to sell and legal fees for the sale deed.

Under the indexation option, acquisition and improvement costs are each indexed from the year they were incurred. Under the 12.5% option, they count at their actual amounts.

The practical lesson is to keep evidence. Find your purchase deed and the receipts for stamp duty and registration, and gather bills, contracts and bank records for construction or major improvements. Claims without proof are hard to defend if the tax department asks questions later. Our seller's documents checklist also lists the papers worth keeping after the sale.

The law gives relief on long-term gains if you reinvest in certain ways. Each exemption has conditions, deadlines and lock-in periods, and missing one can cost you the benefit, so treat these as options to discuss with your CA rather than a do-it-yourself checklist.

• Section 54, for selling a residential house. If you sell a long-term residential house and invest the capital gain in another residential house in India, the amount reinvested can be exempt. The law sets time windows for buying, before or after the sale, and a longer one for constructing.
• Section 54F, for selling other long-term assets, including a plot. This matters to many Mysuru sellers, because a vacant plot or site is not a residential house. The investment must again be in a residential house in India, but the calculation uses the net sale proceeds, not just the gain; invest only part and the exemption is proportionate. Conditions include limits on how many other residential houses you own on the date of sale.
• Section 54EC, for specified bonds. Long-term gains from land or buildings can be invested in specified bonds within six months of the sale, up to ₹50 lakh. The bonds carry a lock-in period; your CA or bank can tell you which issues are open and on what terms.

Under Sections 54 and 54F, the exemption is capped at ₹10 crore, so reinvestment above that doesn't count. The new house generally has to be kept for a minimum period too; selling it too soon can reverse the exemption.

Reinvesting takes time. You might sell this year but not find the right house, or finish building one, until much later. The Capital Gains Account Scheme exists for that gap.

At the time of writing, if you haven't used the money for the new house by the due date for filing your income-tax return for the year of sale, you can deposit the unused amount in a capital gains account with an authorised bank branch before that date. This keeps your Section 54 or 54F exemption open. You then withdraw from the account to pay for the purchase or construction within the time allowed.

Two cautions. First, the money can only be used for the purpose the scheme allows, and withdrawals follow set rules and forms. Second, if you don't use it for the new house within the deadline, the unused amount generally becomes taxable. Ask your CA whether you need the scheme and how much to deposit, and ask your bank which branch near you offers it, because not every branch does. Confirm the current rules before you rely on them.

Tax deducted at source (TDS) is tax the buyer deducts from the price and pays to the government on your behalf. It isn't an extra tax; it is credited against your final tax on the sale.

• Resident seller: if the property is worth ₹50 lakh or more, the buyer deducts 1% TDS under Section 194-IA and deposits it against your PAN. The buyer should give you a TDS certificate, and the amount appears in your annual tax statement.
• NRI seller: the buyer deducts TDS under Section 195 at the applicable capital-gains rate plus surcharge and cess, often a much larger sum. You can apply for a lower-deduction certificate if your real tax will be less, for example because of an exemption.

Either way, TDS doesn't settle the matter. You still report the sale in your income-tax return, work out the actual gain, claim any exemption, and pay any balance or claim a refund of the excess. A large gain may also mean advance tax falls due during the same financial year rather than at return time, and interest can apply if it is paid late.

Capital gains on property is an area where small mistakes are expensive. The choice between the two long-term calculations, whether a plot sale falls under Section 54F rather than 54, the reinvestment deadlines, the capital gains account, advance tax and the return itself all interact. A CA who handles property sales regularly can model the tax under each option before you agree a price, tell you which records to gather, and make sure the sale and any reinvestment are reported correctly. See one before you sign the sale agreement, not after registration.

A note on section numbers: this guide uses the Income-tax Act, 1961 references that most people still search for. A new Income-tax Act took effect from April 2026 and renumbers many provisions, so your CA may cite different numbers; confirm the current position with them.

If you are selling in Mysuru, Siddaganga Real Estate can help with the property side, including pricing, documents and registration, while your CA handles the tax. And if you plan to reinvest in a house to claim an exemption, you can look through properties currently available in Mysuru as you plan.