Capital Gains Tax on Property Sale 2026: 12.5% or 20% Indexation

Last reviewed: 15 August 2026. Every sale of land or a building on or after 23 July 2024 runs on new arithmetic, and two questions now decide most of the bill: is your gain long-term, and do you still get the indexation option? Get the second one wrong and you can overpay by lakhs — in our worked example below, the same ₹90 lakh gain produces a tax bill of ₹11.25 lakh on one route and ₹3.30 lakh on the other. With ITR-3 and ITR-4 due 31 August 2026 under the staggered Finance Act 2026 calendar, and the 15 September advance-tax instalment approaching for anyone selling this year, here is the complete, current position for FY 2025-26 (AY 2026-27) and FY 2026-27.

Short-term or long-term: the 24-month test

For immovable property — land, a building, or both (a flat, shop, plot or bungalow) — the holding period that separates short-term from long-term is 24 months. Count from the date of acquisition to the date of transfer.

For under-construction flats, the acquisition date is frequently disputed. Where the allotment letter fixed the flat and payment terms, the allotment date is generally taken as acquisition — but this is a documentation-driven, litigated area, so preserve the allotment letter, payment schedule and registration deed before you take a position.

The 23 July 2024 watershed: who still gets indexation

The Finance (No. 2) Act, 2024 cut the LTCG rate on property from 20% to 12.5% but removed indexation from the computation. One protection survives: for land or a building acquired before 23 July 2024, a resident individual or HUF pays tax capped at what the old 20%-with-indexation computation would have produced. In practice, you compute both and pay the lower.

Three fine points practitioners watch:

• It is a cap on tax, not a re-computation of the gain. Your capital gain on record remains the un-indexed figure — that is the number Sections 54/54F reinvestment tests and loss set-offs run on.
• The cap can reduce tax to nil but cannot manufacture a loss. If the indexed computation shows a loss while the un-indexed one shows a gain, tax is capped at zero — no carry-forward arises from the indexed loss.
• The ITR does the comparison. Schedule CG in ITR-2/ITR-3 collects both computations for eligible sellers and applies the lower tax — but only if you fill the indexation columns.

Indexation mechanics: CII 376 and the 2001 base

Indexed cost = cost × CII of year of sale ÷ CII of year of purchase. The CBDT has notified the Cost Inflation Index for FY 2025-26 as 376. Improvement costs are indexed from the year the money was spent.

For property acquired before 1 April 2001, you may substitute the fair market value as on 1 April 2001 for actual cost — capped at the stamp duty value on that date. In Maharashtra, the 2001 ready reckoner value is the usual anchor; a registered valuer’s report dated to 1 April 2001 is the document the department expects to see.

Worked example 1: 2015 flat — the 12.5% route wins

Mrs Deshpande bought a Thane flat in August 2015 (FY 2015-16, CII 254) for ₹60,00,000 and sells it in January 2026 for ₹1,50,00,000, paying ₹1,50,000 brokerage and legal costs. Net consideration: ₹1,48,50,000.

Route A is lower by ₹87,372, so she pays 12.5% on the un-indexed gain. Steep appreciation — the flat multiplied 2.5× while inflation indexed only 1.48× — is exactly the pattern where the flat 12.5% rate wins.

Worked example 2: 2003 house — indexation saves ₹7.9 lakh

Mr Kulkarni bought a house in June 2003 (FY 2003-04, CII 109) for ₹30,00,000 and sells it in November 2025 for ₹1,20,00,000.

Here indexation cuts the bill by ₹7,94,725. The pattern: when the price has merely tracked (or trailed) inflation over a long holding, the 20% indexed route usually wins; when the property has sharply outrun inflation, 12.5% wins. Never assume — compute both every time.

Selling below the ready reckoner value: Section 50C

If the stamp duty value (the ready reckoner value in Maharashtra) exceeds your actual sale price by more than 10%, Section 50C taxes you as if you sold at the stamp value. Within the 10% tolerance band, your actual price stands. Where the reckoner value is unrealistic for the specific property — an old structure, litigation, a distress location — you can ask the Assessing Officer to refer valuation to the Departmental Valuation Officer, and the lower of the two values applies. The buyer has a mirror-image exposure under Section 56(2)(x), so a below-reckoner deal creates tax on both sides of the table.

TDS on the sale: Form 26QB is the buyer’s job, but your refund

• Resident seller: the buyer must deduct 1% under Section 194-IA where total consideration (or stamp duty value, if higher) is ₹50 lakh or more, deposit it via Form 26QB within 30 days from the end of the month of deduction, and give you Form 16B. No TAN is needed.
• Joint parties: since 1 October 2024 the ₹50 lakh test applies to the aggregate consideration for the property — splitting payment across two buyers or two sellers no longer escapes TDS.
• NRI seller: Section 195 applies instead — deduction at the LTCG rate on the full sale value unless a lower-deduction certificate is obtained. Our NRI property sale and lower TDS certificate guide covers Form 13 end to end.
• The 1% is only a prepayment. Your actual tax follows the computation above; the difference comes back as refund after you file, so verify the credit in Form 26AS/AIS before filing.

Saving the tax: Sections 54, 54EC and 54F

Money not reinvested by your return-filing due date must sit in a Capital Gains Account Scheme deposit to keep the claim alive. The reinvestment maths, timelines and traps are worked through in our detailed Section 54 vs 54F vs 54EC guide.

The fine print that changes the bill

• Basic exemption adjustment: residents can absorb LTCG against any unused basic exemption limit (₹4 lakh under the new regime for FY 2025-26) before the special rate applies — valuable for retired or low-income sellers.
• No 87A rebate: for AY 2026-27 the rebate applies only to slab-rate income under the new regime, so it cannot wipe out tax on property LTCG.
• Surcharge capped at 15% on LTCG even if your income crosses ₹2 crore; 4% cess applies on top.
• Set-off: long-term capital losses adjust only against LTCG; short-term losses adjust against both. Unabsorbed capital losses carry forward eight assessment years — but only if the return is filed by the due date.
• Belated filers lose twice: a belated return locks you into the new regime and forfeits capital-loss carry-forward, on top of the ₹1,000-5,000 fee under 234F and 1% monthly interest under 234A.

Where you stand in the 2026 filing calendar

The full staggered-calendar detail, belated-return costs and condonation routes are in our ITR last date and belated return guide.

From FY 2026-27: the Income-tax Act 2025

Sales made on or after 1 April 2026 will be assessed under the Income-tax Act, 2025, which replaces the 1961 Act from tax year 2026-27. The 24-month test, the 12.5% rate and the pre-23 July 2024 indexation cap all carry forward — but the section numbers change (capital gains provisions begin at Section 67 of the new Act), so notices and returns will cite unfamiliar references. Our Income-tax Act 2025 decoded series maps the old sections to the new. Selling shares or mutual funds too? Those run on different rates and holding periods — see the equity and mutual fund capital gains guide.

Common mistakes we see in property capital gains

• Paying 12.5% by default when the 20% indexed route was lower (or vice versa) — the comparison is skipped in DIY filings.
• NRIs assuming the indexation option applies to them — it does not, and their TDS runs under Section 195, not 194-IA.
• Ignoring Section 50C when pricing a deal 15-20% below the ready reckoner value.
• Claiming improvement costs — a new kitchen, a floor added — with no bills, bank trail or contractor invoices.
• Missing the Capital Gains Account Scheme deposit deadline and losing an otherwise valid Section 54 claim.
• Forgetting the buyer’s 26QB credit in AIS, then filing with a TDS mismatch that delays the refund.
• Selling early in the year and ignoring advance tax — interest under 234C accrues from the instalment after the sale.

Frequently asked questions

This article is a general summary of the law as on 15 August 2026 for education, not an opinion on any specific transaction. Rates, thresholds and dates change; positions on allotment dates, valuation and exemptions depend on facts and documentation. Please take professional advice before acting.