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Tax on Selling Property India: Capital Gains, Exemptions & Rules in 2025
Published : July 7, 2025, 1:07 AM
Updated : July 7, 2025, 1:08 AM
Author :
kruthi
Table of Contents
Ever wish you had more control over your property taxes? Well, your dreams are soon to come true! The Indian Government changed the Finance Bill in 2024, offering residential property owners the option of selecting between a 20% taxation rate (with indexation benefits) and a 12.5% tax rate without indexation. This significant amendment now provides you with an opportunity to optimise your returns.
As real estate deals involve huge transactions, it is crucial to understand the application of tax on the sale of property. This article will simplify this factor and help you save on long-term capital gains tax on property.
When Does Tax Apply on Selling Property?
While calculating the tax on selling property, you must remember that the government levies tax on the profit and not the full sale value. If a seller opts for an indexation benefit, it adjusts the original cost and improvement expenses using the Cost Inflation Index (CII). This, in turn, restricts taxable gains for any long-term immovable asset.
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To understand the applicability of the property sold tax, refer to these points:
Tax Applies to Residential, Commercial, Land, and Inherited Property
When a homeowner holds a residential property for more than 24 months, they incur a 20% LTCG tax with indexation. For shorter tenures, an STCG tax is applied according to the seller’s income tax slab rates.
Similar rules apply to commercial properties, where LTCG taxation is charged at 20%, and STCG taxes follow the regular slab rates.
Eventually, the same rules will apply to an inherited property. However, in this case, the holding period is considered from the date the previous owner acquired it.
Income Tax is Applicable on Net Profit
A property owner does not need to worry about paying capital gains tax on a property sale if the final sale value is less than the indexed acquisition cost and improvement. This is because, strictly, the net gain is subject to tax.
Tax Value is Based on Capital Gains: Short-Term or Long-Term
The tax rate on capital gains hinges on how long you have held the asset. If you sell a property you have owned for a short time (typically less than 12 to 24 months), you will face higher tax rates on those short-term gains.
On the flip side, if you have held onto that property for a longer period, you usually enjoy lower tax rates on those long-term gains, and even some indexation benefits.
Short-Term vs Long-Term Capital Gains
| Type of Gain | Holding Period | Tax Rate | Tax Treatment |
| Short-Term (STCG) | Held < 24 months | As per the income slab | No indexation benefit |
| Long-Term (LTCG) | Held ≥ 24 months | 20% + cess & surcharge | Indexation benefit applicable |
How Capital Gains Are Calculated?
To understand the property transaction tax calculation, you must be familiar with:
- Full Value of Consideration: To put it simply, this is the residential property’s sale value. It conveys whether the amount is collected in cash and/ or kind.
- Cost of Transfer: Under this head, tax authorities count any expenses that the property owner may incur before selling their house.
- Cost of Acquisition: It is the purchasing value of any house property.
- Cost of Improvement: It includes all the expenses incurred throughout the property holding period, including any upgrades or changes made to the property.
Additionally, please note that as per the announcements in the Union Budget 2024, individuals making residential property investments on or after July 23rd, 2024, will no longer benefit from indexation when calculating long-term capital gains.
Now that you have understood the important terms related to tax on selling property, you can implement these steps to find the LTCG:
- First, take the full value of consideration (also referred to as the sale price or value).
- Deduct the expenses occurring at the time of sale.
- Deduct the overall cost of acquisition.
- Next, deduct the cost of improvement.
- You finally get the LTCG on the house property.
Tax Exemptions Available
The Income Tax Act, 1961 offers deductions on applicable tax on property sale as per section 54. 54EC and 54F of the specific law. Check the details below:
| Section | Applicability | Exemption Condition | Key Limitations |
| 54 | Sale of Residential Property (after holding for more than 24 months) | Buy another residential property within 1–2 yearsConstruct another house within 3 years of the sale | Applicable only for individuals and HUFsThe new property has to be in India |
| 54EC | LTCG obtained by selling land or a building | Invest up to ₹50 lakh within 6 months of selling the property in some exclusive bonds (NHAI/REC/PFC/IRFC) | All legal entities can avail of this income tax exemptionThe specific bonds come with a 5-year lock-in period |
| 54F | Sale of any capital asset other than a residential house | Buy 1 residential house in IndiaConstruct a residential property within 3 years of selling the asset. | Applicable only for individuals and HUFs who do not have more than 1 residential propertyThe entity must not purchase another residential property within 2 years of the sale |
Tax on Property Sale by NRIs
The property sale tax for NRI citizens is calculated similarly to that of the residents. However, there are several differences. The main distinction lies in the TDS rates, which are higher for NRIs.
NRI residential owners are liable to pay a 20% TDS on LTCG and a 30% tax on selling property after holding it for less than 24 months. Because of this, it is smart for these individuals to consult with tax experts to explore ways to save on taxes, both in India and in their home country.
How to Save Tax on Selling Property in India?
Selling a property leads to a significant financial gain, but this occurs only when you know how to manage your tax liability. Here, you can find some practical methods to minimise the tax you owe.
Reinvest to Claim Tax Exemptions Under Section 54 or 54EC
Section 54EC provides an exemption if the gains are invested in certain government bonds within six months of the sale.
Invest Through Capital Gains Account Scheme (CGAS)
If you cannot buy a new property, you can put the money from your sale into a Capital Gains Account Scheme (CGAS) at an authorised bank. This way, you can keep your eligibility for tax exemption until you purchase or construct a new property within the required time frame.
Gift Property (No Capital Gain Unless Sold)
When you give property as a gift to a family member, you do not have to worry about capital gains tax right now. But if the person receiving it decides to sell the property later, they will be liable for capital gains tax based on the original cost and holding period of the donor.
Plan Holding Period to Avoid STCG
By holding the property for more than 24 months, the gains become long-term capital gains, which are taxed at a lower rate than short-term capital gains.
TDS on Sale of Property
The TDS implications of selling a residential property are explained below.
- For Residents: Buyer must deduct 1% TDS if the sale value > ₹50 lakh
- For NRIs: Buyer must deduct higher TDS (20%–30%) unless a lower deduction certificate is obtained
How NoBroker Can Help with Selling Guides?
NoBroker has many step-by-step guides covering listing, pricing, documentation, and legal formalities. It can provide you with property valuation tools and dedicated relationship managers. NoBroker also ensures a smooth, brokerage-free selling process, helping homeowners to sell confidently and efficiently without relying on traditional agents.
Frequently Asked Questions
Ans: If you sell a property within 2 years of acquisition, you will be liable to pay a 30% tax rate on short-term capital gains. Otherwise, you will be charged a 20% tax on long-term gains.
Ans: Property sales resulting in long-term capital gains are taxed at a 20% rate in India.
Ans: You can postpone the tax deduction after selling a property by keeping the profits in a special bank account (CGAS) until you buy or build a new property.
Ans: Section 194-IA states that if you buy immovable property like a house, apartment, building, or land (but not agricultural land), you must withhold TDS from any payment you make to the seller.
Ans: If you sell a property within two years of buying it, you must pay a 30% tax on the profit.
Ans: Section 54 exempts capital gains from selling a residential house if you reinvest in another house within set time limits. Section 54EC exempts gains by investing in specified bonds (up to ₹50 lakh per year).
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