Capital Gains Tax on Property Sale in India: What Sellers Need to Know

Short-Term vs. Long-Term: The 24-Month Line

If you sell a property within 24 months of acquiring it, the gain is treated as a short-term capital gain and taxed at your regular income tax slab rate — there's no special concession. Hold it for more than 24 months, and it qualifies as a long-term capital gain (LTCG), which is taxed differently and generally far more favourably. This 24-month threshold is unchanged for FY 2026-27.

The LTCG Rate — What Changed in 2024, and What Still Applies in 2026

Before the July 2024 budget, LTCG on property was taxed at 20% with indexation — meaning your purchase price was adjusted upward for inflation before calculating the taxable gain, which significantly reduced the effective tax paid. That changed, and the revised structure is still what applies to any sale you make today:

• Property acquired on or after 23 July 2024: LTCG is taxed at a flat 12.5% without indexation.
• Property acquired before 23 July 2024: you get a choice — pay 12.5% without indexation, or 20% with indexation — whichever works out to lower tax for your specific numbers. This grandfathering provision is what most current property owners actually need to know about.

Because indexation can substantially reduce the taxable gain on properties held a long time, sellers with older purchases should actually calculate both options rather than assuming the lower headline rate (12.5%) is automatically better — on a property bought decades ago, 20% with indexation can still come out cheaper. The Union Budget 2026 left this structure untouched, so these rates and the pre-July 2024 grandfathering choice continue to apply for sales made in FY 2026-27.

A New Law, Same Rates: What the Income Tax Act, 2025 Changes

Separately from the 2024 rate changes, India's income tax law itself has been replaced. The Income Tax Act, 2025 came into effect on 1 April 2026, superseding the Income Tax Act of 1961 for any income earned from that date onward — which means it's the law governing a property sale you make today. The tax treatment of capital gains hasn't changed; what's changed is the section numbers:

• Old Section 54 (reinvestment exemption on sale of a residential house) is now Section 82.
• Old Section 54EC (capital gains bonds) is now Section 85.
• Old Section 54F (reinvestment exemption when selling a non-residential asset) is now Section 86.

If your sale closed before 1 April 2026, the old Income Tax Act 1961 and its Section 54/54EC/54F still govern that transaction. For any sale from 1 April 2026 onward, it's Sections 82, 85 and 86 of the new Act — same rules and exemption limits, new numbers.

How to Reduce or Eliminate the Tax: Sections 82, 85 and 86

Section 82 (formerly Section 54) — if you sell a residential property held long-term and reinvest the gain into another residential property in India, you can claim exemption on the gain. The new property must be purchased within 1 year before or 2 years after the sale (or built within 3 years, if under construction). The exemption is capped at ₹10 crore of gains.

Section 85 (formerly Section 54EC) — if reinvesting in another property isn't what you want to do, you can instead invest the gain (up to ₹50 lakh) into specified capital gains bonds within 6 months of the sale. These bonds carry a 5-year lock-in. One thing worth flagging for 2026: NHAI has discontinued new bond issuances under this section, so the currently active issuers are REC, PFC, IRFC and HUDCO — check which of these has an open tranche at the time you're ready to invest.

Section 86 (formerly Section 54F) — applies when you're selling a long-term asset other than a residential house (say, a plot or commercial property) and reinvesting the full sale proceeds into a residential property, not just the gain portion.

If You Can't Reinvest Immediately: The CGAS Route

If you haven't identified a property to reinvest in before your income tax return filing deadline, you can park the unutilized gain in a Capital Gains Account Scheme (CGAS) account at a bank — this preserves your eligibility for the Section 82 exemption while you continue searching, as long as you eventually use the funds within the applicable reinvestment window.

A Practical Example

The Bottom Line

The 24-month holding threshold and the 12.5% LTCG rate (with grandfathering for pre-July 2024 purchases) are the two things every seller needs to get right before listing a property — and neither changed with the new law. What did change is the paperwork: for any sale from 1 April 2026 onward, you're claiming these exemptions under Sections 82, 85 and 86 of the Income Tax Act 2025, not the old Section 54, 54EC and 54F. Beyond that, these exemptions give you real, legal ways to reduce the tax bill if you're reinvesting — but the timelines and current bond issuers matter, so loop in a CA before the sale closes, not after.

Fynest Take

The tax rates haven't changed for 2026, but the law citing them has — if you're selling now, you're working under Sections 82, 85 and 86 of the Income Tax Act 2025, not the old Section 54 family most articles still reference. Get the paperwork right under the current Act, and run the numbers with a CA before you sign anything.