Capital-gains tax on selling property — the complete guide (rates, stamp value, exemptions)

Key takeaway

Property is where the biggest single tax bill — and the biggest single saving — usually sits. Get three things right: compute the gain correctly (with the stamp-value rule in mind), plan the reinvestment (54/54F/54EC can wipe the tax to nil), and watch the ownership rules if you already own several houses. Miss the reinvestment window and a large bill lands; use it and you can pay nothing.

Short-term or long-term?

• Held for more than 24 months → long-term capital gain (LTCG).
• Held for 24 months or less → short-term capital gain (STCG), taxed at your slab rate.

The gain arises in the year of transfer (registration/handing over possession) — not when you receive the money. So if you sold a plot in March and got only part payment, the whole gain is taxable in that year; the timing of the balance payment doesn't change it.

The LTCG rate — 12.5% (or 20% with indexation for older property)

Since 23 July 2024, long-term property gains are taxed at a flat 12.5% without indexation. But there's a grandfathering relief: for a house/land acquired before 23 July 2024, a resident individual or HUF may pay the lower of 12.5% (no indexation) or 20% (with indexation) — so you always get the better of the two. See the capital-gains reckoner.

Computing the gain

Capital gain = Sale value − Cost of acquisition − Cost of improvement − Transfer expenses.

• Cost of acquisition — what you paid (with indexation where you opt for the 20% route). Inherited/gifted? Use the previous owner's cost and holding period.
• Cost of improvement — capital additions that enhance the property (an extra floor, major renovation, boundary wall), incurred on/after 1 April 2001. Routine repairs don't count. Keep bills/receipts as proof — a GST invoice is the best evidence, but any credible documentation (contractor bills, bank payments, approved plans) supports the claim; it isn't strictly limited to a GST bill.
• Transfer expenses — brokerage, legal/stamp costs on the sale.

The stamp-value rule (Section 50C) — you can't undervalue

If your sale price is lower than the stamp-duty / collectorate (circle-rate) value, the law deems the stamp value to be your sale consideration. There's a 10% tolerance band — if the sale price is within 10% of the stamp value, your actual price stands; beyond that, the higher stamp value is used to compute your gain. Separately, the buyer is taxed on the shortfall as "other income" (Section 56(2)). So selling below ~90% of the circle rate creates tax for both sides — price it realistically or get a valuation.

Making the tax zero — the reinvestment exemptions

• Section 82 (old 54) — house → house: reinvest the capital gain from a residential house into another residential house (buy 1 year before / 2 years after, or build within 3 years). Cap ₹10 crore. Once in a lifetime, if the gain is up to ₹2 crore, you may buy two houses.
• Section 86 (old 54F) — any asset → house: for a gain on a plot, gold or shares, reinvest the whole net sale value into one residential house. See Section 54F.
• Section 85 (old 54EC) — bonds: park up to ₹50 lakh of a land/building gain in NHAI/REC bonds within 6 months — 54EC guide.
• Haven't reinvested by the return due date? Deposit the amount in a Capital Gains Account Scheme account to keep the exemption, and use it within the time limit.

The multiple-house rules (this trips people up)

• Section 86 (54F) is not available if you own more than one other residential house on the sale date. So if you already own 3 houses, you cannot claim 54F on a plot/share sale.
• Section 82 (54) (house → house) has no such ownership bar — you can claim it even if you own several houses, subject to the ₹10 crore cap and the two-house (₹2 crore) option.

So an owner of multiple properties selling a house uses 54; selling a plot may be blocked from 54F and should look at 54EC bonds instead.

Worked example

You sell a flat for ₹90 lakh (circle rate ₹95 lakh, so ₹95 lakh is deemed the sale value), bought in 2015 for ₹40 lakh with ₹5 lakh of documented improvement. LTCG ≈ ₹50 lakh. Reinvest ₹50 lakh into a new house (Section 54) → tax nil. Or put ₹50 lakh in 54EC bonds → the gain is exempt up to the ₹50 lakh cap. Do neither → tax at 12.5% ≈ ₹6.25 lakh (or the indexed 20% figure if lower).

If you make a loss on the property

Sold below your indexed cost? That's a long-term capital loss, which can be set off only against other long-term capital gains — you can't set it against salary or other income. Any unabsorbed loss carries forward 8 years (still only against LTCG), but only if you file the return by the due date. A short-term property loss is more flexible — it sets off against any capital gain. See set-off & carry-forward of losses.

TDS when you sell — don't forget this

The buyer must deduct 1% TDS (Section 194-IA) on any property sold for ₹50 lakh or more, deposited via Form 26QB — it shows in your 26AS and you claim it in your return. If the seller is an NRI, the rule is far heavier: TDS is on the whole sale value at the LTCG/STCG rate (not just 1%), so an NRI seller should get a lower-TDS certificate first — see NRI property sale TDS. Reconcile the TDS carefully so you get full credit.

Forms required

• ITR-2 (or ITR-3 with business income) with the Capital Gains schedule.
• Sale deed, purchase deed, improvement bills, and the Capital Gains Account proof if you parked funds.
• If reinvesting later, keep the allotment/registration papers for the new house or the 54EC bond certificate.

Frequently asked questions

Is LTCG applicable if I sell a plot I held for years?

Yes — a plot held over 24 months gives LTCG at 12.5% (or 20% with indexation if acquired before 23 July 2024 and you're a resident individual/HUF). You can save it under Section 54F (buy a house) or 54EC (bonds).

If I own 3 houses, can I still claim the Section 54 / 54F exemption?

Selling a house and buying another → Section 54 has no ownership limit, so yes. Selling a plot/shares → Section 54F is blocked if you own more than one other residential house, so with 3 houses you can't use 54F — use 54EC bonds instead.

Do I need a GST bill to claim cost of improvement?

Not strictly. A GST invoice is the strongest proof, but any credible evidence of genuine capital improvement — contractor bills, bank payments, approved building plans — supports the claim. Keep the documentation; only capital enhancements (not repairs), incurred on/after 1 April 2001, qualify.

What if I sell below the circle rate?

If the sale price is more than 10% below the stamp-duty/collectorate value, the stamp value is deemed your sale consideration for computing the gain, and the buyer is taxed on the shortfall too. Price within 10% of the circle rate or obtain a valuation.

Is capital gain taxable in the year of sale even if I get paid later?

Yes. The gain arises in the year the property is transferred (registration/possession), regardless of when the sale money actually reaches you. Receiving part payment in a later year does not defer the tax — plan for it in the year of transfer.

How much TDS is deducted when I sell property?

For a resident seller, the buyer deducts 1% TDS under Section 194-IA if the price is ₹50 lakh or more (Form 26QB), which you claim in your return. For an NRI seller, TDS is deducted on the entire sale value at the applicable capital-gains rate, so an NRI should obtain a lower-TDS certificate before the sale.