What Is Capital Gain on Sale of Property?
When you sell a residential house, commercial property, or a plot of land, the difference between your sale price and your cost of acquisition is treated as capital gain and is subject to income tax in India. The tax treatment depends on how long you held the property before selling — the holding period determines whether it is a Long Term Capital Gain (LTCG) or a Short Term Capital Gain (STCG).
| Type of Property | Immovable property (house, flat, plot, commercial) |
| Long Term Holding Period | More than 24 months |
| LTCG Tax Rate | 12.5% (without indexation) — from Budget 2024 |
| STCG Tax Rate | At applicable income tax slab rate |
| TDS on Sale | 1% of sale consideration (Section 194-IA) if value ÔëÑ ₹50 lakh |
| Exemption Sections | Section 54, 54EC, 54F, 54B |
Short Term vs Long Term Capital Gain on Property
The holding period determines the tax treatment:
| Holding Period | Type of Gain | Tax Rate | Indexation |
|---|---|---|---|
| 24 months or less | STCG — Short Term | Slab rate (5%/20%/30%) | Not available |
| More than 24 months | LTCG — Long Term | 12.5% (flat, no indexation) | Not available from FY 2024-25 |
How to Calculate Capital Gain on Sale of Property
The basic formula for capital gain is:
LTCG Calculation Example (Property Held > 24 Months)
| Item | Amount |
|---|---|
| Sale Price of Property | ₹80,00,000 |
| Less: Brokerage / Registration at sale (2%) | ₹1,60,000 |
| Net Sale Consideration | ₹78,40,000 |
| Less: Original Cost of Purchase (FY 2015-16) | ₹35,00,000 |
| Less: Cost of Improvement (renovation FY 2020-21) | ₹5,00,000 |
| Long Term Capital Gain (LTCG) | ₹38,40,000 |
| Tax @ 12.5% on LTCG | ₹4,80,000 |
Note: Surcharge and health & education cess (4%) are added on top of the base tax.
STCG Calculation Example (Property Held Ôëñ 24 Months)
| Item | Amount |
|---|---|
| Sale Price | ₹55,00,000 |
| Less: Transfer Expenses | ₹1,00,000 |
| Less: Original Cost (1.5 years ago) | ₹45,00,000 |
| Short Term Capital Gain | ₹9,00,000 |
| Tax at Slab Rate (30% for highest bracket) | ₹2,70,000 |
What Is Included in "Cost of Acquisition"?
The cost of acquisition for computing capital gain includes:
- Purchase price paid for the property
- Stamp duty and registration charges paid at the time of purchase
- Brokerage or commission paid to an agent at the time of purchase
- Legal fees and documentation charges
- Advance / token money forfeited by the seller (if applicable, reduced from cost)
Not included: Loan interest paid on home loan (deductible under Section 24(b) separately), repair and maintenance expenses.
Cost of Improvement — What Qualifies?
Cost of improvement refers to capital expenditure incurred after the original purchase to enhance the value of the property. Examples:
- Structural renovation (adding a floor, room extension)
- Major electrical/plumbing upgrades
- Interior renovation that increases the asset value
Not included: Routine repair and maintenance expenses, painting, minor fixtures — these are revenue expenses and not capital expenditure.
TDS on Sale of Property — Section 194-IA
If you are the buyer of an immovable property valued at ₹50 lakh or more, you are required to deduct TDS at 1% of the sale consideration before paying the seller. This is governed by Section 194-IA.
- Who deducts: Buyer of the property (not the seller)
- Rate: 1% of sale consideration
- Threshold: Property value ÔëÑ ₹50 lakh
- How to deposit: Form 26QB (online, no TAN needed) via income tax portal within 30 days from end of month of deduction
- TDS certificate: Form 16B, downloadable from TRACES within 15 days of filing Form 26QB
From FY 2024-25, if the stamp duty value (circle rate value) of property exceeds ₹50 lakh, TDS is applicable even if the actual sale price is lower. TDS is deducted on whichever is higher — actual sale price or stamp duty value.
Section 54 — Exemption on LTCG from Sale of Residential House
Under Section 54, an individual or HUF can claim exemption on LTCG arising from sale of a residential house by reinvesting in another residential house property.
| Condition | Detail |
|---|---|
| Asset type | Long-term residential house property |
| New property — purchase | Within 1 year before or 2 years after date of sale |
| New property — construction | Within 3 years from date of sale |
| Exemption amount | Lower of: LTCG amount or cost of new house (max ₹10 crore from FY 2023-24) |
| Lock-in period | New house cannot be sold within 3 years of purchase/construction |
Section 54EC — Exemption via Capital Gain Bonds
Under Section 54EC, LTCG from sale of land or property can be exempt if invested in specified capital gain bonds within 6 months of sale.
- Eligible bonds: NHAI and REC bonds (5-year lock-in, non-transferable)
- Maximum investment: ₹50 lakh per financial year
- Exemption: Lower of LTCG or investment amount
- Interest on these bonds is taxable at slab rate
- Bonds cannot be pledged, sold, or transferred before 5 years
Section 54F — Exemption for Other Long-Term Assets
Section 54F provides exemption when any long-term capital asset (other than residential house) is sold and the net sale proceeds are reinvested in a residential house.
- Covers sale of plot, commercial property, shares, mutual funds
- Exemption = LTCG × (Amount invested / Net sale proceeds)
- You must not own more than one other residential house on the date of transfer
Capital Gain Account Scheme (CGAS)
If you cannot reinvest the capital gain before the ITR filing due date, you can deposit the amount in a Capital Gain Account Scheme (CGAS) with a nationalised bank. The deposited amount must be used for the specified purpose (new house or bonds) within the prescribed time. If unused, the gain becomes taxable in the year the time limit expires.
Frequently Asked Questions
Is capital gain on sale of inherited property taxable?
Yes. Capital gain on sale of inherited property is taxable in the hands of the inheritor (the seller). The cost of acquisition is the cost to the original owner or the FMV on 1 April 2001 (if acquired before that date). The holding period includes the period it was held by the previous owner.
How is capital gain on a jointly owned property taxed?
Capital gain on a jointly owned property is divided among co-owners in proportion to their ownership share. Each co-owner reports their share of capital gain in their individual ITR and pays tax accordingly.
Can I claim Section 54 exemption if I buy two houses?
Yes, from FY 2019-20 onwards, you can claim Section 54 exemption for purchase of two residential houses if the LTCG is up to ₹2 crore. This one-time option is available only once in a lifetime.
Is stamp duty paid by the buyer added to the buyer's cost of acquisition?
Yes. Stamp duty, registration charges, and any GST paid by the buyer on purchase of a property are included in the cost of acquisition. These amounts increase the cost, thus reducing the capital gain when the buyer sells the property later.
What happens if the sale price is below the stamp duty value (circle rate)?
If the actual sale price is lower than the stamp duty valuation (circle rate), the stamp duty value is deemed to be the full value of consideration for the purpose of calculating capital gain. The seller pays tax on the higher stamp duty value, not the lower actual price.
Summary
Capital gain on sale of property is taxed at 12.5% (LTCG, held > 24 months) or at slab rate (STCG, held Ôëñ 24 months) from FY 2025-26. Indexation is no longer available for property acquired after 1 April 2001. Key savings avenues include Section 54 (reinvest in residential house), Section 54EC (invest in NHAI/REC bonds within 6 months), and Section 54F (for non-residential assets). Buyers must deduct 1% TDS on property purchase ÔëÑ ₹50 lakh via Form 26QB. Proper documentation of purchase cost, stamp duty, and improvement costs is essential to minimize taxable gain.