Capital Gains Tax on Property: Calculation, Holding Period, Indexation Choice, and Exemptions

Property capital gains rules changed after Union Budget 2024, so the old “20% with indexation” default is no longer the safe assumption.

Today, your tax outcome depends on three things:

• Holding period (24 months rule)
• Date of acquisition (before or after 23 July 2024)
• Your residential status (Resident vs NRI matters for the indexation choice)

This guide explains what changed, how to calculate gains, how to decide between indexation vs non-indexation (where allowed), and which exemptions actually work.

What changed after Union Budget 2024

Holding period now uses the 24-month rule

• If the property is sold within 24 months, it is short-term capital gains (STCG)
• If the property is sold after 24 months, it is long-term capital gains (LTCG)

LTCG rate and indexation changed from 23 July 2024

For transfers on or after 23 July 2024, the LTCG framework broadly shifts to 12.5% without indexation.

This means the taxable gain can look larger because inflation adjustment is not available, but the headline tax rate is lower.

The indexation choice is not for everyone

The option to choose between 20% with indexation or 12.5% without indexation is part of the grandfathering relief and is specifically framed for Resident Individuals and Resident HUFs for land or building acquired before 23 July 2024, and it typically applies only where the tax under the new method would be higher.

Takeaway:

• If you are a Resident Individual or HUF and the property was acquired before 23 July 2024, compute both methods and compare where eligible
• If you are an NRI, do not assume you will get the indexation choice, plan for 12.5% without indexation unless your case clearly fits the resident grandfathering option

What counts as cost and what usually gets rejected

Cost of acquisition

This includes the purchase value and other eligible acquisition-linked costs.

Cost of improvement

Cost of improvement usually means capital improvements, not normal upkeep.

Costs that are commonly disputed include painting, routine repairs, maintenance, plumbing fixes, minor replacement work, and general refurbishing. These are usually treated as maintenance and not as capital improvement.

Costs that are more defensible include structural renovation, adding a room or floor, major alterations that add value or extend the life of the property, and major permanent upgrades, provided you have proper invoices and payment proofs.

Expenses on transfer

Selling expenses can include brokerage, legal fees, and documentation charges that are directly linked to the transfer. Keep invoices and proof of payment.

Taxation of STCG vs LTCG on property

Short-term capital gains

If the holding period is under 24 months, the gains are added to total income and taxed at your slab rate.

Long-term capital gains

If the holding period is more than 24 months, LTCG applies and the tax method depends on whether the indexation choice is available in your case.

• Property acquired on or after 23 July 2024 typically falls under 12.5% without indexation
• Property acquired before 23 July 2024 may allow an eligible taxpayer to compare 20% with indexation versus 12.5% without indexation

Indexation vs non-indexation comparison

If you are eligible to compare both methods, don’t guess. Always calculate both and compare tax outgo.

Example setup: bought in June 2018 and sold in December 2025, with eligibility to compare both methods in a typical resident grandfathering scenario.

In this illustration, 12.5% without indexation gives slightly higher net proceeds. This will not be true in every case. If indexation pushes up your cost base meaningfully, indexation can still win where eligible.

Exemptions that can reduce or eliminate LTCG tax

1. Section 54

Section 54 works when you sell a residential house property and reinvest into another residential house. You can buy within 1 year before sale or 2 years after sale, or construct within 3 years after sale.

If the reinvestment is lower than what is required for full exemption, the exemption becomes proportionate. There are also holding conditions for the new property and breach can lead to reversal.

This exemption has an upper cap element that becomes relevant in high-value cases, including a 10 crore cap consideration in the exemption computation. If your sale and reinvestment amounts are large, this becomes a must-check point.

2. Section 54EC

Section 54EC allows you to reinvest eligible capital gains into specified bonds such as REC, NHAI, and PFC.

• Investment window is within 6 months from date of transfer
• Maximum investment is ₹50 lakh per financial year
• Lock-in is 5 years

3. Section 54F

Section 54F applies when you sell an asset other than a residential house and invest in one residential house, subject to conditions.

CGAS and why it matters

A common real-life situation is when you sell a property, you plan to reinvest within the allowed time window, but you have not reinvested before filing your ITR.

In such cases, you generally need to deposit the unutilised amount into the Capital Gains Account Scheme before the ITR due date to keep the exemption claim valid.

Many people lose exemptions not because the plan was wrong, but because this step was missed.

Common mistakes that trigger notices, reversals, or disputes

• Misclassifying STCG vs LTCG due to wrong holding period calculation
• Claiming cost of improvement for painting or repairs without capital nature and proof
• Missing invoices for brokerage, legal, or transfer expenses
• Not comparing both methods when eligible
• Missing CGAS deposit when reinvestment happens later
• Property sale value appearing incorrectly in AIS for joint owners and then ignoring it

Before filing, it helps to reconcile the reporting in AIS, TIS, and Form 26AS: AIS vs TIS vs Form 26AS before filing ITR

Takeaway

Property capital gains is no longer one default formula.

The process is:

• Confirm holding period under 24 months or over 24 months
• If LTCG, confirm acquisition date before or after 23 July 2024
• If acquired before cut-off, confirm whether you are eligible for the resident indexation choice, then compute both methods and compare
• If planning exemption, choose the right route using Section 54, Section 54EC, or Section 54F and remember the 10 crore cap relevance in high-value cases
• If reinvestment will take time, don’t miss CGAS

Related Reads:

Tax Planning in India: Definition, Types, Benefits & Common Methods
Tax Planning for Salaried Employees in India (2026 Guide)

Disclaimer: This article is for informational and educational purposes only. It does not constitute tax, legal, or financial advice. Tax rules can change and the right treatment depends on your facts. Consult a qualified tax professional for advice specific to your situation.