Capital Gains Tax on Selling a House in India: Rates, Indexation and Exemptions

Selling a house at a profit is good news, but the profit is taxable. Many sellers find out about capital gains tax only when the buyer's lawyer or the chartered accountant raises it, by which time the money may already be planned for something else. A little planning before you sell can reduce the tax legally, or at least avoid surprises.

This guide explains the basics in plain language. The Income-tax Act has been rewritten, so section numbers have changed, but the concepts below are what matter.

In short: If you sell a house after holding it for more than 24 months, the gain is long-term and is taxed at 12.5% without indexation. If you bought before 23 July 2024, you may be allowed to choose between 12.5% without indexation and 20% with indexation, whichever gives less tax. You can reduce or remove the tax by reinvesting in another house or in specified bonds, if you meet the conditions.

What is a capital gain

A capital gain is the profit when you sell a capital asset, and a house, flat or plot is one. In simple terms:

Capital gain = sale price − cost of the property − cost of improvement − expenses on the sale

• Cost of the property is what you paid to buy it, including stamp duty and registration.
• Cost of improvement means capital improvements such as adding a floor or a major renovation, with proof. Routine repairs and painting do not count.
• Expenses on transfer are costs directly linked to the sale, such as brokerage and legal fees.

Short-term or long-term

The tax depends on how long you held the property:

The holding period is counted from the date you got the property to the date of sale. For a flat in an under-construction project, ask a tax professional how to count the start date, since it can depend on the allotment and agreement dates.

Tax rates on long-term gains

For property sold after 23 July 2024, the long-term capital gains rate is 12.5% without indexation, plus surcharge and cess where they apply.

The choice for older property

If you bought the property before 23 July 2024, resident individuals and Hindu undivided families have been allowed to compute the tax in two ways and pay the lower amount:

1. 12.5% on the gain without indexation, or
2. 20% on the gain with indexation, where the purchase cost is adjusted upward using the government's Cost Inflation Index.

Indexation matters most when you held the property for many years, because inflation then raises your cost a lot and shrinks the taxable gain. If you bought on or after 23 July 2024, only the 12.5% method applies. Ask your chartered accountant to run both calculations for an older property, and confirm the current rule, since tax law changes.

A simple example

Suppose you bought a flat for ₹40 lakh (including stamp duty) and sold it after several years for ₹80 lakh. You paid ₹1 lakh as brokerage and legal fees on the sale. You did not do any capital improvement.

Surcharge and the health and education cess would be added on top. If the flat was bought before 23 July 2024, the indexed method might give a smaller tax, so a calculation both ways is worth the effort. The numbers above are an illustration.

How to reduce or avoid the tax

1. Reinvest in another residential house (the section 54 route)

If you sell a residential house and reinvest the capital gain in another residential house in India, you can claim an exemption on the gain, subject to conditions. As the rules stood when we last checked:

• You buy the new house 1 year before or 2 years after the sale, or construct one within 3 years.
• The exemption is capped at ₹10 crore of gain.
• If the gain is ₹2 crore or less, you can choose to invest in up to two houses, but this option is allowed only once in a lifetime.
• If you sell the new house within 3 years of buying it, the exemption is withdrawn.

If you cannot buy by the due date for filing your return, the law allows you to deposit the unused gain in a special account with a bank (the Capital Gains Account Scheme) to keep the benefit. Ask your accountant how to do this before the filing date.

2. Invest in specified bonds (the section 54EC route)

You can invest the gain in bonds issued by certain government-linked institutions. As of our last check:

• The limit is ₹50 lakh in a financial year.
• The investment must be made within 6 months of the sale.
• The bonds have a 5-year lock-in.

3. Use the right costs

Keep all documents: purchase deed, stamp duty receipt, payment proof, bills for capital improvements, and brokerage invoices. A higher proven cost means a lower gain.

4. Check inherited and gifted property

If you got the house as a gift or inheritance, the cost and holding period are generally taken from the previous owner, but the details are technical. Ask a tax professional.

TDS when you sell

When you sell a property, the buyer usually must deduct a small percentage as tax at source (TDS) from the payment, if the price is above a threshold, and deposit it with the government. The rate is higher if the seller is a non-resident. As a seller, ask the buyer to do this correctly and give you the TDS certificate, so that you can claim credit for it when you file your return. Check the current rate and rules on the Income Tax Department's website.

What to do before you sell

1. Gather your records of the purchase cost, improvements and expenses.
2. Check the holding period and whether you bought before or after 23 July 2024.
3. Run both tax methods if you bought before that date.
4. Plan the reinvestment if you want the exemption. Decide where the money will go before you sell.
5. Talk to a chartered accountant before you sign the sale agreement. See how to sell a house in India.
6. File the return on time and report the sale correctly.

Related costs and benefits

• Stamp duty and registration paid on the original purchase form part of the cost. See stamp duty explained.
• Interest you claimed as a deduction on a home loan cannot be added to the cost again. See home loan tax benefits.
• If you plan to buy another house to save tax, use the checklist in documents to check before buying property.

Common mistakes

• Not keeping purchase and improvement proofs.
• Missing the deadline to reinvest or to deposit in the capital gains account.
• Selling the new house within 3 years and losing the exemption.
• Ignoring the indexation choice for an old property.
• Showing a low sale price to save tax or duty, which can cause notices later.
• Assuming that the buyer's TDS is the final tax. It is only an advance credit.

Frequently asked questions

Is the sale of agricultural land taxed the same way?

Not always. Rural agricultural land is treated differently from urban property in some cases. Ask a tax professional about your land's location and status.

Do I pay tax if I sell at a loss?

There is no tax on a loss. A long-term capital loss can usually be set off against other long-term gains and carried forward, as per the rules, if you file the return on time.

Do I get any relief if I use the money to repay a home loan?

Repaying a loan alone is not a reinvestment that qualifies for the exemption. You need to buy or build another house, or invest in the specified bonds.

The law has been renumbered. Do the old section numbers still apply?

The Income-tax Act, 2025 is meant to replace the 1961 Act from 1 April 2026, with the sections renumbered. The idea of the exemptions is the same, but confirm the current numbers and conditions with a professional.

Tax rates, limits and conditions change. This guide is general information, not tax or legal advice. The example uses simple numbers. Consult a chartered accountant before you sell.

Sources

• Income Tax Department, Government of India
• Income-tax Act, 2025, India Code
• Ministry of Finance, Government of India

• capital gains tax
• LTCG on property
• section 54
• indexation
• selling a house