Tax Guide
Capital Gains Tax on Property in India: A Complete Guide
How capital gains tax is calculated when you sell property, which expenses you can add to your cost, how indexation and the 12.5% vs 20% choice work, ways to reduce the tax, and whether mutual fund losses can offset property gains.
Updated for FY 2026-27 and the Income-tax Act 2025.
Since 23 July 2024, long-term capital gains on property are taxed at 12.5% without indexation. But if you bought the property before that date, you can still choose the old 20% with indexation if it works out lower — a valuable choice worth checking. Budget 2026 left this unchanged for FY 2026-27.
Short-term vs long-term: the 24-month line
How long you held the property decides everything. Hold it for more than 24 months and the gain is long-term (LTCG); hold it for 24 months or less and it is short-term (STCG). The two are taxed very differently, and only long-term gains qualify for indexation and the reinvestment exemptions.
How the gain is calculated
The basic formula is the same for both:
Capital gain = Sale value − (cost of acquisition + cost of improvement + transfer expenses)
For a long-term gain where you use the indexation option, the cost of acquisition and improvement are first adjusted upward for inflation before being subtracted. Everything then hinges on which costs you are actually allowed to include — which trips up more sellers than any other part.
Which costs you can add — and which you can't
Only capital costs count. Money spent running or maintaining the property does not reduce your gain, however large. This is the single most common mistake, in both directions — people forget genuine improvement costs, and wrongly try to claim repairs and property tax.
| Can be added to cost | Cannot be added |
|---|---|
| Purchase price of the property | Routine repairs and maintenance |
| Stamp duty and registration charges | Painting and minor fixes |
| Brokerage or commission on purchase | Municipal / property tax |
| Legal and documentation fees | Society maintenance charges |
| Capital improvements — renovation, extension, added construction (with bills) | Home loan interest (generally not allowed as cost of acquisition) |
| Transfer expenses on sale — brokerage, legal fees, advertising | Insurance premiums |
The test for improvement is whether the work added to or enhanced the property (a new floor, an extension, a modular kitchen fit-out) rather than simply keeping it in working order (repainting, fixing a leak). Keep invoices — the burden of proof is on you.
Indexation, and when it still applies
Indexation adjusts your purchase and improvement costs for inflation using the government's Cost Inflation Index (CII), so you are taxed only on the real gain. The base year is 2001-02 (CII = 100); for property bought before 1 April 2001 you use the fair market value as on that date.
Indexed cost = original cost × (CII of sale year ÷ CII of purchase year)
Since the 2024 change, indexation survives in one place only: the grandfathering option for land or buildings acquired before 23 July 2024 by resident individuals and HUFs. For anything bought on or after that date, there is no indexation — you simply pay 12.5% on the plain gain.
The 12.5% vs 20%-with-indexation choice
If your property qualifies for grandfathering, compute both and pay the lower:
- 12.5% without indexation tends to win for recent purchases or high-growth sales, where inflation adjustment is small relative to the gain.
- 20% with indexation tends to win for older properties held through years of inflation, where indexing the cost sharply reduces the taxable gain.
There is no single right answer — it depends on your purchase year and how much the property appreciated. The calculator on this page works out both for you.
Short-term capital gains on property
If you sell within 24 months, the gain is simply added to your total income and taxed at your slab rate (up to 30% plus surcharge and cess). There is no indexation, and crucially, none of the reinvestment exemptions below apply to short-term gains. Holding past the 24-month mark is often the simplest tax saving available.
How to reduce or avoid the tax
For long-term gains, the law offers genuine, legal ways to bring the tax down to zero:
- Section 54: reinvest the gain from a residential house into another residential house — buy within 1 year before or 2 years after the sale, or construct within 3 years. Exemption is capped at a ₹10 crore investment.
- Section 54F: reinvest the net sale proceeds of any other long-term asset into a residential house, under similar timelines.
- Section 54EC: invest the gain (up to ₹50 lakh) in specified bonds such as NHAI or REC within 6 months, with a 5-year lock-in.
- Capital Gains Account Scheme: if you cannot reinvest before your return is due, park the money in a CGAS account by the filing deadline to keep the exemption alive.
(These are being renumbered under the Income-tax Act 2025, but the benefits carry over.) Miss the CGAS deposit deadline and the exemption is lost entirely, so plan the timing early.
Can you offset mutual fund gains or losses against property gains?
Yes — within limits, because both sit under the same "capital gains" head. The rule turns on whether the loss is short-term or long-term:
- A short-term capital loss (for example, from equity mutual funds sold within a year, or debt funds) can be set off against both short-term and long-term property gains.
- A long-term capital loss (for example, from equity funds held over a year) can be set off only against long-term property gains, not short-term ones.
So if you book a ₹60,000 short-term loss on mutual funds and a ₹1,20,000 long-term gain on property in the same year, you are taxed on just ₹60,000. Unused losses can be carried forward for 8 years — but only if you file your return by the due date. Note that capital losses cannot be set off against salary or most other income; they stay within the capital gains head.
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Property Capital Gains Tax Calculator
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Tax Guide
Frequently Asked Questions
Common questions on capital gains tax when you sell property in India — rates, indexation, allowable costs, exemptions and loss set-off.
If you hold property for more than 24 months, the gain is long-term (LTCG). If you hold it for 24 months or less, it is short-term (STCG). Only long-term gains get indexation and the reinvestment exemptions; short-term gains are taxed at your slab rate.
For property sold on or after 23 July 2024, long-term gains are taxed at 12.5% without indexation, plus surcharge and cess. Budget 2026 kept this unchanged for FY 2026-27.
Only in one case: if you are a resident individual or HUF and bought the land or building before 23 July 2024, you can choose the old 20% with indexation instead of 12.5% without indexation, whichever is lower. For property bought on or after that date, indexation is not available.
Capital gain = sale value minus (cost of acquisition + cost of improvement + transfer expenses). For the indexation option, the cost of acquisition and improvement are first adjusted for inflation using the Cost Inflation Index before being subtracted.
You can add the purchase price, stamp duty and registration, brokerage and legal fees on purchase, capital improvements like renovation or extension (with bills), and transfer expenses on sale such as brokerage and advertising.
Generally no. Routine repairs and maintenance, painting, municipal or property tax, society charges and home loan interest are not treated as cost of acquisition or improvement for capital gains. Only capital costs that enhance the property count.
Work that adds to or enhances the property, such as an extension, an added floor or a major renovation, qualifies as cost of improvement. Simply keeping the property in working order, like repainting or fixing a leak, does not. Keep invoices as proof.
Reinvest the long-term gain from selling a residential house into another residential house — bought within 1 year before or 2 years after the sale, or constructed within 3 years. The exemption is capped at a ₹10 crore investment.
Section 54EC lets you invest your long-term capital gain (up to ₹50 lakh) in specified bonds such as NHAI or REC within 6 months of the sale to claim exemption. These bonds have a 5-year lock-in.
If you plan to reinvest for a Section 54 or 54F exemption but cannot do so before your ITR is due, you can deposit the amount in a Capital Gains Account Scheme account by the filing deadline to keep the exemption alive. Missing this deadline forfeits the exemption.
Yes, within the capital gains head. A short-term capital loss (for example from equity funds sold within a year, or debt funds) can be set off against both short-term and long-term property gains. A long-term capital loss can be set off only against long-term property gains.
No. A long-term capital loss can only be set off against long-term capital gains. A short-term capital loss is more flexible and can be set off against both short-term and long-term gains.
Unused capital losses can be carried forward for 8 assessment years and set off against eligible future capital gains. This is allowed only if you file your income tax return by the due date.
No. Capital gains rates and the set-off rules are the same under both the old and new tax regime. Your choice of regime affects your regular income, not the special rates on capital gains.
The gain is computed the same way, but for NRI sellers the buyer must deduct TDS under Section 195, typically on the full sale value unless a lower-deduction certificate is obtained. See our dedicated NRI property TDS guide for the details.
No. It is an indicative estimate using FY 2026-27 rules and does not include surcharge, reinvestment exemptions or NRI TDS. Your actual tax depends on your full details. Confirm with a qualified tax advisor before acting.