Short answer: When you sell a house, flat, plot or shop in India, the profit is a capital gain. If you held the property for more than 24 months, the gain is long-term and taxed at 12.5%. A resident who bought before 23 July 2024 can instead pay 20% with indexation, whichever is lower. A gain on property held for 24 months or less is added to your income and taxed at your slab rate. The buyer deducts 1% TDS when the price is ₹50 lakh or more, and you can cut or remove the tax by buying a house or capital gains bonds.
This guide is for owners selling a house, flat, plot, shop or inherited property in India, and for NRIs selling property here. It gives the section numbers of the Income-tax Act, 2025, which applies to sales from 1 April 2026, with the old 1961 Act numbers in brackets. It was checked against the Income-tax Act, 2025, the Finance Act, 2026 and Income Tax Department pages in October 2026. It is general information, not tax advice for your own sale.
Which law applies to your sale
The date of the sale decides the law. A sale made on or before 31 March 2026 is taxed under the Income-tax Act, 1961, and you report it in the return for assessment year 2026-27. A sale on or after 1 April 2026 is taxed under the Income-tax Act, 2025, in tax year 2026-27, with the return due in 2027. The rules are almost the same; mainly the section numbers and the form numbers have changed, as the Income Tax Department's transition FAQs explain.
TDS follows the date the buyer pays you. A payment made on or after 1 April 2026 falls under the new Act, even if the sale agreement was signed earlier.
Short-term or long-term gain
Land and buildings held for more than 24 months before the sale are long-term capital assets. Held for 24 months or less, they are short-term (section 2(101), old section 2(42A)). The 24 months run from the date you acquired the property to the date you transfer it.
For property you inherited or received as a gift, the time the previous owner held it counts too. So a house your father bought in 2010 and left to you in 2026 is a long-term asset in your hands, even if you sell it a month later.
Tax rates on a property sale
| Your gain | Tax | Section (2025 Act) |
|---|---|---|
| Short-term (held 24 months or less) | Added to your other income and taxed at your slab rate | Normal rates |
| Long-term | 12.5%, without indexation | 197(1) (old 112) |
| Long-term, resident individual or HUF, property bought before 23 July 2024 | The lower of 12.5% without indexation or 20% with indexation | 197(3) (old 112, proviso) |
On top of the tax, a surcharge applies if your total income is above ₹50 lakh (10%) or ₹1 crore (15%), and on capital gains it is capped at 15%. A 4% Health and Education Cess applies on the tax and surcharge. The Finance Act, 2026 made no change to these capital gains rates.
If your other income is below the basic exemption limit, a resident individual can use the unused part of the limit against a long-term gain (section 197(2)). NRIs cannot use the 20% indexation option; for them the long-term rate is 12.5%.
How to work out the gain
The gain is the sale value, minus the costs of the sale, minus what the property cost you:
- Sale value: the price in the sale deed. If that price is below the stamp duty value (the guideline value in Tamil Nadu), the stamp duty value is taken as the sale value instead. The declared price still stands if the stamp duty value is no more than 110% of it (section 78, old section 50C). You can dispute the stamp duty value, and the Assessing Officer may then ask a Valuation Officer to value the property. See how to find the guideline value in Tamil Nadu.
- Costs of the sale: expenses wholly for the transfer, such as legal fees and brokerage paid to sell.
- Cost of acquisition: what you paid for the property, including stamp duty and registration you paid when you bought it.
- Cost of improvement: what you spent on additions or alterations, such as building a floor. For property held since before 1 April 2001, only improvements made on or after that date count.
Indexation, where you use it, raises the cost in line with inflation using the Cost Inflation Index. The indexed cost is the cost multiplied by the index for the year of sale and divided by the index for the year you bought (or 2001-02, if you bought earlier). The official index for recent years:
| Financial year | Cost Inflation Index |
|---|---|
| 2001-02 | 100 |
| 2005-06 | 117 |
| 2010-11 | 167 |
| 2015-16 | 254 |
| 2020-21 | 301 |
| 2023-24 | 348 |
| 2024-25 | 363 |
| 2025-26 | 376 |
| 2026-27 | 384 |
Example 1: a flat bought in 2015-16
Meena, a resident, bought a flat in 2015-16 for ₹30 lakh and sells it in October 2026 for ₹80 lakh, spending ₹1 lakh on the sale.
- Without indexation: gain = 80 − 1 − 30 = ₹49 lakh. Tax at 12.5% = ₹6.13 lakh.
- With indexation: indexed cost = 30 × 384 ÷ 254 = ₹45.35 lakh. Gain = 80 − 1 − 45.35 = ₹33.65 lakh. Tax at 20% = ₹6.73 lakh.
She pays the lower figure, ₹6.13 lakh, plus cess.
Example 2: a plot bought in 2005-06
Ravi, a resident, bought a plot in 2005-06 for ₹10 lakh and sells it in 2026-27 for ₹40 lakh.
- Without indexation: gain = ₹30 lakh. Tax at 12.5% = ₹3.75 lakh.
- With indexation: indexed cost = 10 × 384 ÷ 117 = ₹32.82 lakh. Gain = ₹7.18 lakh. Tax at 20% = ₹1.44 lakh.
He pays ₹1.44 lakh, plus cess. For property bought long ago, indexation usually gives the lower tax.
Inherited, gifted and jointly owned property
Receiving property under a will or by inheritance is not income, so there is no tax when it comes to you (section 92(3), old section 56(2)(x) proviso). Tax arises only when you sell it.
- Cost: your cost is what the previous owner paid, plus improvements made by them or by you (section 73(1), old section 49(1)). The previous owner is the last person who bought it, not someone who also inherited it.
- Property from before 2001: if the previous owner acquired it before 1 April 2001, you can use either their cost or the fair market value on 1 April 2001, at your option. For land and buildings, that value cannot be more than the stamp duty value on 1 April 2001 (section 90(9) and 90(10), old section 55(2)(b)). A registered valuer's report usually supports the figure.
- Cost not known: if the previous owner's cost cannot be found, it is the fair market value on the date they acquired the property (section 90(11)).
- Indexation: the Act indexes from the year you first held the property or from 2001-02, whichever is later. Some sellers index from the previous owner's year, relying on court rulings under the old Act. Ask a chartered accountant which applies to your sale.
- Joint owners: the buyer's TDS form records each seller's share, and each seller gets the TDS credit for their share. Each co-owner then reports the gain on their own share in their own return.
For the papers heirs need before they can sell, see selling inherited property.
How to save capital gains tax legally
The Act gives these exemptions for long-term gains. The windows count from the date of the sale.
- Selling a house, section 82 (old 54): buy one house in India within 1 year before or 2 years after the sale, or build one within 3 years. Any cost above ₹10 crore is ignored. Once in a lifetime, if the gain is ₹2 crore or less, you can buy two houses.
- Selling a plot, land, a shop or other property, section 86 (old 54F): buy or build one house in the same windows. Invest the whole net sale price for a full exemption; investing part gives a proportionate one. It is lost if you own more than one other house on the sale date. The same ₹10 crore cap applies.
- Selling land or a building, section 85 (old 54EC): invest the gain in specified bonds within 6 months, up to ₹50 lakh across the year of sale and the next year, for 5 years.
- Selling farm land used for farming in the last 2 years, section 83 (old 54B): buy other farm land within 2 years. See the farm land guide.
Details that catch sellers out:
- Selling the new house: if you sell the new house within 3 years, the exemption is taken back.
- Bonds: the qualifying bonds are those of NHAI and REC, named in the Act, and other bonds the government notifies, such as HUDCO bonds issued from April 2025. A loan against the bonds counts as cashing them.
- Not bought yet when you file: put the unused amount in the Capital Gains Account Scheme at a bank before the due date of your return, and attach the proof. Money still unused when the window ends is taxed in that year.
The Income Tax Department lists these exemptions on its capital gains exemptions page.
TDS: what the buyer deducts
When you are a resident seller, the buyer deducts TDS under section 393(1), Table serial 3(i) of the 2025 Act (old section 194-IA):
- Rate: 1% of the price or the stamp duty value, whichever is higher.
- When: it applies when either figure is ₹50 lakh or more. The 1% is on the whole amount, not only the part above ₹50 lakh.
- Joint buyers or sellers: the ₹50 lakh test uses the total paid by all buyers to all sellers.
- Each instalment: the buyer deducts on each payment, including the advance.
- No surcharge or cess: none is added for a resident seller.
- No PAN: if you do not give a valid PAN, the rate rises to 20%.
- Filing: the buyer needs no TAN. They pay and report on Form 141 (it replaced Form 26QB) within 30 days from the end of the month of deduction.
- Your certificate: the buyer downloads Form 132 from TRACES and gives it to you within 15 days of that due date. The credit appears in your Annual Information Statement, and you claim it in your return.
Rural agricultural land is outside this TDS. The TDS is not your final tax: you still work out the gain and pay any balance, or claim a refund.
If you are an NRI
- The TDS: the buyer deducts under section 393(2), Table serial 17 (old section 195). There is no ₹50 lakh threshold.
- The rate on a long-term gain: 12.5%, plus surcharge (10% on payments above ₹50 lakh, 15% above ₹1 crore) and 4% cess. On a payment above ₹50 lakh that works out to about 14.3%.
- Short-term gain: a higher rate applies.
- Lower or nil TDS certificate: to have tax deducted only on what you actually owe, apply on Form 128 under section 395(1) (it replaced Form 13 and section 197) before the sale. A section 197 certificate issued before April 2026 for tax year 2026-27 receipts stays valid.
- Buyer's filing: from 1 October 2026, a resident individual or HUF buying from an NRI needs no TAN. They pay and report with their PAN on Form 141, Schedule E. Other buyers still need a TAN and file the quarterly Form 144, then give you Form 131.
- Sending the money abroad: this needs Form 145 (it replaced Form 15CA) and, where required, a chartered accountant's Form 146 (it replaced Form 15CB).
- Getting excess TDS back: file an income tax return, usually ITR-2.
The 20% indexation option is for residents only. For the power of attorney and the papers, see how to sell property in India from abroad and selling property in India as an NRI.
Reporting the sale and paying the tax
- Return: individuals and HUFs with capital gains and no business income file ITR-2, and those with business income ITR-3. The gain goes in Schedule CG.
- Due date: for a sale in tax year 2026-27, the return is due by 31 July 2027 if you have no business income.
- Advance tax: if your total tax for the year is ₹10,000 or more, you pay advance tax in instalments due on 15 June, 15 September, 15 December and 15 March. If the gain comes later in the year, pay its tax in the instalments still to come, or by 31 March, and no interest is charged for the earlier ones (section 425(4), old section 234C). Resident seniors aged 60 or more with no business income do not pay advance tax.
- Losses: a short-term capital loss can be set off against any capital gain. A long-term loss only against long-term gains. Unused losses carry forward for 8 years if you file your return on time.
- Papers to keep: your purchase deed, receipts for improvements, the sale deed, the buyer's TDS certificate (Form 132), and proof of any house purchase, bonds or Capital Gains Account deposit.
For the full selling process, see how to sell property in India and the documents required to sell property in India.
Selling farm land
Agricultural land in a rural area is not a capital asset, so its sale has no capital gains tax and no TDS (section 2(22)(iii)). Farm land inside a town of 10,000 or more people, or within 2 km to 8 km of one depending on its population, is taxed like other land. See is sale of agricultural land taxable in India for the test and examples.
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Checked against the Income-tax Act, 2025, the Finance Act, 2026, CBDT notifications and Income Tax Department pages in October 2026. Written by the Gmore team. Tax rules change; check with a chartered accountant before you sell.
