Capital gains tax on property: LTCG, indexation and FY 2025-26 examples

Identify the asset and the correct tax year

This guide addresses FY 2025-26, from 1 April 2025 to 31 March 2026, using the Income-tax Act, 1961 provisions relevant to that year. It concerns property held as a capital asset. A developer selling stock-in-trade, or a business transferring a depreciable building, can face different rules. A house, commercial unit, plot and agricultural parcel should not be treated as interchangeable without checking their legal classification.

Immovable property consisting of land or a building becomes long term when held for more than 24 months. A shorter holding generally produces short-term capital gains taxed at the applicable normal rates, rather than the general property LTCG rate. Inherited or gifted property can require reference to the previous owner’s holding and cost, so the date on your latest mutation entry may not decide the answer.

Gather the purchase deed, sale deed, possession documents, succession papers and payment records before calculating. The date of a taxable transfer can involve more than the registration date in unusual arrangements. Obtain transaction-specific advice for development agreements, disputed possession, compulsory acquisition or an agreement spanning different financial years.

Apply the July 2024 change without mixing methods

For transfers on or after 23 July 2024, the general section 112 rate for property LTCG is 12.5%, with no indexation in the ordinary computation. Indexation previously adjusted eligible historical costs using the notified Cost Inflation Index. The newer rate is lower, but a lower percentage does not necessarily produce lower tax when the taxable gain is larger.

The Finance (No. 2) Act 2024 also introduced protection for a resident individual or resident HUF transferring long-term land, a building, or both acquired before 23 July 2024. Where tax under the new rule exceeds tax computed under the earlier provisions, the excess is ignored. This is commonly described as choosing the lower of 12.5% without indexation and 20% with indexation.

The statutory mechanism is a tax protection, not unrestricted restoration of indexed capital gains for every purpose. Do not assume an indexed loss under the comparison automatically becomes a loss available for carry-forward. Non-residents, companies and other taxpayers cannot simply borrow a concession expressly limited to resident individuals and HUFs. Establish residential status for the relevant year before using it.

Need help with this? Read our guide to Income Tax Return Filing (ITR Filing) Online.

Work out sale value and support every cost

Begin with the full value of consideration, then consider section 50C if the stamp duty value is higher. The stamp-value rules include conditions and valuation remedies; a low contract price does not automatically settle the income-tax sale value. Where valuation is genuinely disputed, obtain advice on the available reference procedure instead of silently substituting your preferred figure.

Deduct eligible expenditure incurred wholly and exclusively in connection with the transfer, together with allowable acquisition and improvement costs. Brokerage and documented transfer-related legal charges can be relevant. Routine maintenance, household purchases and unsupported cash estimates should not be inserted as capital improvements merely to reduce tax. The character and evidence of each expense matter.

For example, if the accepted sale consideration is ₹90 lakh, eligible selling expenses are ₹2 lakh and allowable unindexed cost is ₹48 lakh, the initial unindexed gain is ₹40 lakh. That is a starting computation before exemptions, losses or other relevant adjustments. Preserve invoices and payment trails supporting each figure, and distinguish acquisition expenses from amounts already deducted elsewhere in your tax history.

Worked comparison where the indexed protection helps

Assume a resident individual sells qualifying long-term property in FY 2025-26. The property was acquired before 23 July 2024. After eligible selling expenses, the accepted net consideration is ₹90 lakh. Assume allowable historical cost is ₹40 lakh and the properly calculated indexed cost for the comparison is ₹60 lakh. The indexed figure here is an assumption, not a published inflation index or a universal uplift.

The new computation gives a ₹50 lakh gain and base tax of ₹6,25,000 at 12.5%. The earlier indexed comparison gives a ₹30 lakh gain and base tax of ₹6,00,000 at 20%. Subject to the full statutory calculation, the protection prevents collection of the ₹25,000 excess. With 4% cess and no surcharge, the corresponding totals are ₹6,50,000 and ₹6,24,000.

This illustration assumes the basic exemption is already used, no exemption or loss adjustment applies and there is no surcharge. A real return must test those facts. Calculate both methods on consistent sale values and supported costs. Do not compare a new-method figure before exemption with an old-method figure after exemption and call that a fair tax comparison.

Worked comparison where 12.5% is better

Now assume accepted net consideration of ₹1 crore, historical cost of ₹60 lakh and an illustrative indexed comparison cost of ₹70 lakh. The unindexed gain is ₹40 lakh, producing ₹5 lakh base tax at 12.5%. The indexed comparison gain is ₹30 lakh, producing ₹6 lakh base tax at 20%. Here the new method is already better, so the protection does not reduce the tax further.

At 4% cess and with no surcharge, the illustrated new-method liability is ₹5,20,000. These figures exclude other income, exemptions and losses. They show why age of the property alone cannot tell you which computation wins. The relationship between appreciation and inflation-adjusted cost is more important than a general claim that indexation is always preferable.

For property acquired on or after 23 July 2024, the special pre-cutoff protection is unavailable. Also check whether an asset actually qualifies as long term during FY 2025-26 before discussing the long-term rate. A recent purchase sold in that year may fall within short-term rules, making the 12.5% comparison irrelevant altogether.

Consider reinvestment exemptions before spending proceeds

Section 54 can provide relief for eligible individuals and HUFs selling a long-term residential house and investing in qualifying residential property in India. The usual timing framework permits purchase within one year before or two years after transfer, or construction within three years. Section 54F concerns eligible long-term assets other than a residential house and has additional conditions, including restrictions concerning ownership of other houses.

The investment measure differs: section 54 generally looks to the capital gain, while full section 54F relief generally depends on investment of net consideration. Both provisions require careful checking, including the ₹10 crore statutory cap relevant to qualifying investment. Do not assume buying any property, including a shop or foreign apartment, produces the desired residential reinvestment exemption.

Section 54EC may apply to eligible long-term land or building gains invested in specified bonds within six months, subject to its ₹50 lakh ceiling and other conditions. If a house investment is not completed before the relevant return deadline, examine the Capital Gains Accounts Scheme deposit requirement. A normal savings account labelled mentally as house money is not a substitute for a required statutory deposit.

TDS, rebate and reporting are separate questions

A buyer’s deduction under section 194-IA is an advance collection mechanism, not the final capital gains tax. For a resident seller and a transaction meeting the threshold, TDS can apply even where reinvestment ultimately eliminates the seller’s gain tax. Reconcile the credit in Form 26AS and claim the correct amount in the return. A non-resident sale requires a separate withholding analysis under section 195.

Finance Act 2025 expanded new-regime section 87A relief for eligible resident individuals, but the rebate does not shelter tax on special-rate gains such as those under section 112. The headline about no ordinary income tax up to ₹12 lakh should therefore not be used to declare a property gain tax-free. The deduction regime and the capital gains schedule must both be completed correctly.

Retain a computation showing sale value, stamp value, ownership share, costs, exemptions, comparison relief and taxes paid. Joint owners should each report their proper share rather than splitting the gain arbitrarily. Where advance tax is relevant, ask about payment timing and applicable interest instead of waiting until the return is prepared to estimate the liability.

Resolve special facts before signing the transaction

Inherited property, older acquisitions, co-ownership and a change in residential status can materially alter the calculation. Obtain predecessor documents and a supportable valuation where the law permits a historical fair-market-value substitution. A broker’s informal estimate is not automatically sufficient evidence. Keep the valuation report and explain which statutory route justifies using it.

A sale agreement should identify the actual consideration, payment schedule and allocation of transaction expenses. Do not understate consideration or accept undocumented side payments to reduce tax. Such arrangements create tax, evidence and enforcement risks for both parties. Compare expected sale proceeds with loan closure, withholding and tax so that the cash available for reinvestment is realistic.

LawLine can connect you with an independent professional for tax computation and property-document review. Ask for both a transaction checklist and a written exemption timeline. This article is confined to FY 2025-26 and the stated facts; it is not a promise that the same section numbering or result governs a later-year transfer. Recheck the law for the actual transaction period.

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