What are Capital Gains on Sale of Property?
Capital gains on the sale of property refer to the profit you earn when you sell or transfer real estate—such as land, a building, or a residential/commercial property—for a price higher than its original purchase cost (plus certain allowable expenses). Under the Indian Income Tax Act, 1961, these gains are classified as:
- Short term capital gains
- Long term capital gains
Highlights Post-Budget 2025: Long Term Capital Gains (LTCG)
Budget 2025 did not alter the existing holding periods or LTCG tax rates. The rules introduced in Budget 2024 (such as changes to the rate for certain properties acquired on or after July 23, 2024) remain in effect.
No Change in Holding Periods
- The holding periods that classify gains as short-term or long-term remain unchanged.
- For instance, listed equity shares and equity mutual funds continue to be long term after 12 months of holding; immovable property remains long term after 24 months, etc.
Clarification on Section 87A Rebate for Special-Rate Incomes
- Rebates under Section 87A (which lowers or eliminates tax for individuals below a certain taxable income) is not available for incomes taxed at special rates.
- Specifically, STCG (under section 111A) and LTCG (under section 112) on equity instruments no longer qualify for the rebate in the new tax regime under Section 115BAC.
New Tax Regime vs. Old Tax Regime
- The new tax regime continues to have higher income slabs with generally lower tax rates.
- However, special-rate incomes (capital gains, lottery winnings, etc.) do not get the Section 87A rebate in this regime.
- Under the old regime, even though 87A applies generally, capital gains taxed at special rates were already not eligible for the rebate.
Indexation vs. Non-Indexation
- For immovable properties acquired before July 23, 2024, taxpayers may choose 20% with indexation or 12.5% without indexation.
- For those acquired on or after July 23, 2024, the 12.5% rate applies without indexation.
Check Out: Home Loan Tax Saving Calculator
Holding Period and Tax on Long Term Capital Gains
| Asset | Holding Period | Tax Rate |
|---|---|---|
| Listed Equity Shares | 12 months | Gains up to INR 1.25 lakh exempt in a financial year 12.5% on balance (no indexation) |
| Listed Equity Mutual Funds | 12 months | Gains up to INR 1.25 lakh exempt in a financial year 12.5% on balance (no indexation) |
| Listed Tax-Free Bonds | 12 months | 12.5% (indexation benefit not available)[Note: Interest from notified tax-free bonds is exempt] |
| Listed Debentures | 12 months | 12.5% (indexation benefit not available) |
| Debt Mutual Funds | 24 months | If acquired before April 1, 2023: 12.5% without indexationIf acquired on or after April 1, 2023: Tax at applicable slab rates (no indexation) |
| Unlisted Shares | 24 months | 12.5% (no indexation) |
| Unlisted Debentures/Bonds | 24 months | Tax at applicable slab rates (indexation not available) |
| Real Estate | 24 months | If acquired before July 23, 2024: 20% with indexation or 12.5% without indexation If acquired on or after July 23, 2024: 12.5% without indexation |
Notes:
- Securities Transaction Tax (STT) must be paid on both purchase and sale for certain exemptions to apply (particularly for equities).
- Indexation allows you to adjust the purchase price for inflation, effectively reducing taxable gains.
- Interest from notified tax-free bonds remains exempt from tax, but capital gains on the sale of such bonds follow the above LTCG rules.
- Section 87A rebate (available to resident individuals with income up to a certain limit) is not available against tax payable on any type of capital gains under the new regime.
- The slab rate (or “applicable slab rate”) means your normal income tax rate based on your total taxable income.
How Does Capital Gains Work?
Before you calculate your capital gains, it’s helpful to know whether your asset is classified as short-term or long-term.
Holding Period Meaning: Total number of months between the date of purchase and the date of sale.
| Holding Period | Type of Capital Gains |
|---|---|
| Less than 24 months | Short Term Capital Gains |
| 24 months or longer | Long Term Capital Gains |
Long Term Capital Gains Calculation
When you’ve held an asset for 24 months or longer, you can calculate your capital gains under two different methods: the Old Regime and the New Regime. Let’s compare both to see which might work better for you.
| Aspect | Old Regime | New Regime |
|---|---|---|
| Tax Rate | 20% with indexation benefit. | 12.5% without indexation benefit. |
| Holding Period | 36 Months | 24 Months |
| Basic Exemption | ₹1,00,000 | ₹1,25,000 |
Long Term Capital Gains with Indexation Example
Indexation is the process of adjusting the original purchase price of an asset using the Cost Inflation Index (CII) to account for inflation. This reduces the taxable capital gain and lowers the tax you need to pay.
The Cost Inflation Index (CII) is a number published by the government every year to show how prices are increasing due to inflation. It helps adjust the purchase price of an asset (like real estate or gold) when calculating capital gains tax. The higher the CII, the more expensive the asset appears, reducing the taxable profit.
Historical Data of CII
| Financial year | Cost Inflation Index |
|---|---|
| 2024-25 | 363 |
| 2023-24 | 348 |
| 2022-23 | 331 |
| 2021-22 | 317 |
| 2020-21 | 301 |
| 2019-20 | 289 |
| 2018-19 | 280 |
| 2017-18 | 272 |
| 2016-17 | 264 |
| 2015-16 | 254 |
| 2014-15 | 240 |
| 2013-14 | 220 |
| 2012-13 | 200 |
| 2011-12 | 184 |
| 2010-11 | 167 |
| 2009-10 | 148 |
| 2008-09 | 137 |
| 2007-08 | 129 |
| 2006-07 | 122 |
| 2005-06 | 117 |
| 2004-05 | 113 |
| 2003-04 | 109 |
| 2002-03 | 105 |
| 2001-02 | 100 |
Mr. Rajesh Sharma, a resident of Mumbai, purchased a residential property in 2007 for ₹25,00,000. Over the years, the property appreciated in value due to the city’s booming real estate market. Here are the transaction details:
Property Purchase Details:
- Purchase Price: ₹25,00,000
- Year of Purchase: 2007
Property Sale Details:
- Sale Price: ₹75,00,000
- Date of Sale: June 2024
| Steps | Formula | Calculation | Result |
|---|---|---|---|
| Calculate the CII | CII of sale year/ CII of purchase year | 363/ 129 | 2.814 |
| Inflation Adjusted Price | Purchase Price*Indexation Factor | ₹25,00,000 * 2.814 | ₹70,35,000 |
| Profit/ Long Term Capital Gains | Sale Price – Inflation Adjusted Price | ₹75,00,000 – ₹70,35,000 | ₹4,65,000 |
| Long Term Capital Gains Tax | Profit * 20% | ₹4,65,000 * 20% | ₹93,000 |
Read More: Home Loan Eligibility – Salaried vs. Self Employed
Long Term Capital Gains without Indexation Example
Mr. Rajesh Sharma, a resident of Mumbai, purchased a residential property in 2007 for ₹25,00,000. Over the years, the property appreciated in value due to the city’s booming real estate market. Here are the transaction details:
Property Purchase Details:
- Purchase Price: ₹25,00,000
- Year of Purchase: 2007
Property Sale Details:
- Sale Price: ₹75,00,000
- Date of Sale: September 2024
| Steps | Formula | Calculation | Result |
|---|---|---|---|
| Profit/ Long Term Capital Gains | Sale Price – Purchase Price | ₹75,00,000 – ₹25,00,000 | ₹50,00,000 |
| Long Term Capital Gains Tax | Profit * 12.5% | ₹50,00,000 * 12.5% | ₹6,25,000 |
Short Term Capital Gains Calculation
When you’ve held an asset for less than 24 months, you can calculate your capital gains under two different methods: the Old Regime and the New Regime. Let’s compare both to see which might work better for you.
| Aspect | Old Regime | New Regime |
|---|---|---|
| Tax Rate | Applicable income tax slab rate of the individual | Applicable income tax slab rate of the individual |
| Holding Period | Less than 24 months | Less than 24 months |
| Indexation Benefits | Yes | No |
Short Term Capital Gains with Indexation Example
Mr. Rajesh Sharma, a resident of Mumbai, purchased a residential property in September 2022 for ₹30,00,000. Over the years, the property appreciated in value due to the city’s booming real estate market. Here are the transaction details:
Property Purchase Details:
- Purchase Price: ₹30,00,000
- Year of Purchase: September 2022
Property Sale Details:
- Sale Price: ₹90,00,000
- Date of Sale: June 2024
| Steps | Formula | Calculation | Result |
|---|---|---|---|
| Calculate the CII | CII of sale year/ CII of purchase year | 363/ 331 | 1.096 |
| Inflation Adjusted Price | Purchase Price*Indexation Factor | ₹30,00,000 * 1.096 | ₹32,88,000 |
| Profit/ Short Term Capital Gains | Sale Price – Inflation Adjusted Price | ₹90,00,000 – ₹32,88,000 | ₹57,12,000 |
| Short Term Capital Gains Tax | Profit * 5% | ₹57,12,000 * 5% | ₹2,85,600 |
Read More: How to Save 10 Lakh on Your Home Loan?
Capital Gains Tax Exemptions on Property
Long-term capital gains (LTCG) from the sale of property can be exempted or reduced if you reinvest the proceeds in specific ways. The main sections allowing these exemptions are:
- Section 54
- Section 54B
- Section 54F
- Section 54EC
| Section | Applicability | Reinvestment Requirement | Timeline for Reinvestment | Lock-in Period | Additional Notes |
|---|---|---|---|---|---|
| 54 | Gains from selling a residential property | Reinvest only the capital gain (not total sale proceeds). Can invest in up to two residential properties. But the total capital gain must not exceed ₹2 Cr. | Buy within 1 year before or 2 years after the sale. OR Construct within 3 years from the sale. | If you sell the new property within 3 years, exemption is revoked, and the earlier capital gain becomes taxable. | The two-property benefit is allowed only once. Use the Capital Gains Account Scheme (CGAS) if you can’t invest before filing your tax return. |
| 54F | Gains from selling a long-term capital asset other than a residential property | Must reinvest the entire sale proceeds (not just gains) to get full exemption. Partial exemption if only part of the proceeds is reinvested. | Buy within 1 year before or 2 years after the sale. OR Construct within 3 years from the sale. | If you sell the new property within 3 years, exemption is revoked, and the earlier capital gain becomes taxable. | Up to two residential properties can be purchased for claiming exemption. |
| 54EC | Gains from selling a residential property | Invest up to ₹50 Lakh of gains in NHAI or REC bonds. | Invest within 6 months of the sale or before filing your income tax return. If not invested immediately, deposit in CGAS and invest within 2 years. | The bonds have a 5-year lock-in | If the bond investment is not made within 6 months (or by ITR filing), the gain is taxed If you fail to invest after depositing in CGAS, the gain becomes short-term in the lapse year. |
| 54B | Gains from selling agricultural land (outside specified rural areas) | Reinvest the gains in new agricultural land within 2 years of selling the old land. | Purchase the new agricultural land within 2 years. Alternatively, deposit in CGAS before filing the return and then utilize within 2 years. | If you sell the new agricultural land within 3 years, the exemption is withdrawn, and you must pay tax on the earlier gain. | Rural land definition depends on distance from municipality/cantonment (2/6/8 km) and population criteria. If you don’t invest within 2 years, the gain becomes short-term in the year of lapse. |
Conclusion
If you’re looking to invest in property, our team is here to assist you every step of the way. Choosing Credit Dharma for your home loan simplifies the process. We offer expert advice and personalized assistance to make everything hassle-free. You’ll receive timely updates on your loan application and disbursement progress.
From the initial application to the final disbursement, we provide comprehensive support. Enjoy clear and honest communication at every stage, with no hidden surprises.
Frequently Asked Questions
In India, taxpayers must pay full tax on short-term capital gains (STCG) without any exemption limit. The government adds these gains to your total income and taxes them according to your applicable income tax slab rates.
To reduce capital gains tax liability:
Reinvest in Residential Property: Under Section 54, reinvesting proceeds from the sale of a residential property into another residential property can provide tax exemptions.
Invest in Specified Bonds: Section 54EC allows investment in certain bonds (e.g., NHAI or REC) within six months of the sale to claim exemptions.
A capital gain refers to the profit earned from the sale or transfer of a capital asset, such as property, stocks, or bonds. The Income Tax Act taxes this gain and categorizes it as either short-term or long-term based on the asset’s holding period.
Short-Term Capital Gains (STCG): Taxed as per the individual’s income tax slab rates.
Long-Term Capital Gains (LTCG): Taxed at 12.5% without indexation benefits.
The tax payable depends on the holding period of the property:
Held for 24 Months or Less: Classified as STCG and taxed according to your income tax slab rates.
Held for More Than 24 Months: Classified as LTCG and taxed at 12.5% without indexation.
Yes, it is mandatory to report any capital gains from the sale of property in your Income Tax Return (ITR). Accurate reporting ensures compliance with tax laws and helps avoid potential penalties.
Yes, senior citizens are subject to capital gains tax in India. However, they can benefit from the basic exemption limit and other deductions available under the Income Tax Act.
Recent amendments have introduced the following changes:
Holding Period: Properties held for more than 24 months are considered long-term assets.
Tax Rate: LTCG on property sales is taxed at 12.5% without indexation benefits.
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