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 option)

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

At a glance: rates and holding period

Note: Senior citizens have no special capital gains rate on property. The rates above apply regardless of age.

What changed after Union Budget 2024

Holding period now uses the 24-month rule

• If the property is sold within 24 months of acquisition, it is short-term capital gains (STCG)
• If the property is sold after 24 months, it is long-term capital gains (LTCG)
• This applies to all immovable property: residential houses, plots, vacant land, commercial property

Before 23 July 2024, LTCG on property was taxed at 20% with indexation benefit for all taxpayers, including NRIs. That uniform framework no longer applies to transfers on or after 23 July 2024.

LTCG rate and indexation changed from 23 July 2024

For transfers on or after 23 July 2024, the default LTCG rate is 12.5% without indexation.

The taxable gain can appear larger because inflation adjustment is not available, but the headline rate is lower. Whether this results in a higher or lower tax bill depends on how long you held the property and how much it appreciated.

The grandfathering option: who qualifies and how it works

Under the second proviso to Section 112(1)(a), a resident individual or resident HUF selling property (land or building or both) that was acquired before 23 July 2024 is protected from paying more tax under the new regime than they would have under the old one.

In practice, this means: tax is computed under both methods, and if the 12.5% tax exceeds the 20% with indexation tax, the excess is ignored. The taxpayer pays whichever is lower.

Four conditions must all be met for this protection to apply:

• The seller is a resident individual or resident HUF (not an NRI, company, LLP, AOP, or BOI)
• The asset transferred is land, building, or both
• The property was acquired before 23 July 2024
• The transfer takes place on or after 23 July 2024

NRIs, companies, LLPs, firms, and non-resident HUFs do not qualify. They pay 12.5% without indexation on all post-23 July 2024 transfers.

What this means for NRIs

NRI sellers pay LTCG at 12.5% without indexation on property held for more than 24 months, regardless of when the property was acquired. There is no grandfathering option available to non-residents. In addition, the buyer of an NRI's property is required to deduct TDS under Section 195 at the rates in force. For LTCG on property transferred on or after 23 July 2024, this rate is 12.5% plus applicable surcharge and cess, generally applied on the sale consideration. NRIs planning a property sale may apply for a lower or nil deduction certificate under Section 197 before the transaction.

For a full treatment of NRI property taxation including FEMA, remittance, and repatriation rules, see the NRI taxation in India explained article.

Summary:

• If you are a resident individual or HUF and the property was acquired before 23 July 2024, compute both methods and pay the lower of the two
• If you are an NRI, the grandfathering option does not apply. Plan for 12.5% without indexation

What counts as cost and what usually gets rejected

Cost of acquisition

This includes the purchase value and other eligible acquisition-linked costs such as stamp duty and registration charges paid at the time of purchase.

Cost of improvement

Cost of improvement means capital improvements, not routine 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 for all of these.

How to calculate capital gains on a property sale

The calculation follows a four-step sequence. The same steps apply to both the with-indexation and without-indexation methods; only the cost figure differs.

Step 1: Determine the sale consideration

Use the actual sale value or the stamp duty value (circle rate), whichever is higher, as required under Section 50C.

Step 2: Compute the cost base

Add: purchase price + eligible improvement costs + acquisition-linked expenses (stamp duty, registration at time of purchase).
Under the without-indexation method, use this figure as-is.
Under the with-indexation method (where eligible), multiply by: CII of sale year divided by CII of acquisition year. For FY 2025-26, the CII is 376 (CBDT Notification No. 70/2025).

Step 3: Subtract transfer expenses

Deduct brokerage, legal fees, and other documented transfer costs from the sale consideration.

Step 4: Apply the applicable rate

Capital gains = Net sale consideration minus indexed (or actual) cost.
Multiply by 12.5% (default) or 20% (where grandfathering applies and gives a lower result).
Add surcharge and cess as applicable to arrive at total tax outgo.

Taxation of STCG vs LTCG

If the holding period is under 24 months, the gains are added to total income and taxed at your applicable slab rate. There is no separate flat rate for STCG on property.

If the holding period is more than 24 months, LTCG applies and the rate depends on acquisition date and residential status, as set out in the table above.

Indexation vs non-indexation: worked example

If you are eligible to use both methods, always calculate both and compare the total tax outgo, not just the gains figure.

Example setup: property bought in June 2018 and sold in December 2025, seller is a resident individual. Both methods available under grandfathering.

In this illustration, 12.5% without indexation gives slightly better net proceeds. This will not hold in every case. For properties with high improvement costs or older acquisition dates, the indexed cost can grow large enough that 20% with indexation produces a lower tax bill. Always compute both.

Three routes to reduce or eliminate LTCG tax

Three sections of the Income Tax Act allow you to reduce or eliminate LTCG on property when the proceeds are reinvested in a specified way. Each section has distinct conditions, timelines, and caps.

1. Section 54

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

If the reinvestment is lower than the capital gains, the exemption is proportionate. If you invest the full gains, the full LTCG can be exempt. There are holding conditions on the new property, and a breach leads to reversal of the exemption.

From AY 2024-25 onwards, where the cost of the new residential property exceeds Rs 10 crore, the exemption calculation caps the investment at Rs 10 crore. In high-value transactions, this means the full LTCG cannot be sheltered through Section 54 alone even with full reinvestment.

2. Section 54EC

Section 54EC allows you to reinvest eligible capital gains into specified bonds issued by REC, NHAI, PFC, and IRFC.

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

The Rs 50 lakh cap is per financial year. If your gain exceeds Rs 50 lakh and the sale straddles two financial years, you may be able to invest Rs 50 lakh in each, subject to conditions. The Rs 10 crore cap that applies to Sections 54 and 54F does not apply to Section 54EC.

3. Section 54F

Section 54F applies when you sell a long-term capital asset other than a residential house (such as a plot of land, commercial property, shares, or gold) and invest the net sale consideration into one residential house.

Unlike Section 54 where only the capital gains need to be reinvested, Section 54F requires the entire net consideration to be invested for a full exemption. Partial investment gives proportionate exemption. The Rs 10 crore investment cap (from AY 2024-25) applies here as well.

CGAS and why it matters

A common real-life situation: you sell a property, you plan to reinvest within the allowed 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 (CGAS) before the ITR due date to keep the exemption claim valid. The CGAS amount counts as reinvestment for the purpose of computing the exemption.

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 documentary proof
• Missing invoices for brokerage, legal, or transfer expenses
• Not computing both methods when eligible under the grandfathering provision
• Not working through both computations (indexed and non-indexed) separately when claiming Section 54 / 54EC / 54F exemptions where grandfathering applies. The two routes can produce different exemption amounts in high-value cases.
• Missing CGAS deposit when reinvestment happens after ITR filing date
• Property sale value appearing incorrectly in AIS for joint owners and then ignoring the mismatch

Before filing, 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 (STCG at slab) or over 24 months (LTCG)
• If LTCG, confirm acquisition date: before or after 23 July 2024
• If acquired before the cut-off and you are a resident individual or HUF, compute both methods and pay the lower of the two
• Remember: when grandfathering applies, work through exemptions under Sections 54, 54EC, and 54F separately under both the indexed and non-indexed computations. They can produce different results in high-value transactions.
• If planning an exemption, choose the right route using Section 54, Section 54EC, or Section 54F and factor in the Rs 10 crore cap in high-value cases
• If reinvestment will take time, deposit unutilised gains in CGAS before the ITR due date

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 correct treatment depends on your specific facts and residential status. The section numbers cited refer to the Income Tax Act 1961 as amended by the Finance (No.2) Act 2024, applicable for FY 2025-26 ITR filings. From FY 2026-27 onwards, these provisions are renumbered under the Income Tax Act 2025 (Section 54 becomes Section 82; Section 54F becomes Section 86) but the substantive rules remain unchanged for the current year. Consult a qualified tax professional for advice specific to your situation.