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Income Tax · Capital gainsCapital gains on sale of a house: calculation with examples
Selling a house is often the largest taxable transaction in a family. Since 23 July 2024 the law gives a 12.5% rate without indexation – with an option for residents to use 20% with indexation on older property. Here is how to compute the gain correctly, with worked examples.
When you sell a residential house, flat or plot, the profit is taxed under capital gains (Section 45 of the 1961 Act; Section 67 of the Income-tax Act, 2025). How much tax you pay depends on how long you held the property, what it cost, and which rate option you use.
Step 1: short-term or long-term?
| Holding period of land/building | Type | Tax |
|---|---|---|
| 24 months or less | Short-term (STCG) | Added to income, taxed at slab rates |
| More than 24 months | Long-term (LTCG) | 12.5% without indexation, or 20% with indexation (residents, property acquired before 23 July 2024) |
The holding period runs from the date of acquisition (usually the registration date, or allotment date for builder flats in many cases) to the date of transfer.
Step 2: compute the gain
| Item | Explanation |
|---|---|
| Full value of consideration | Sale price, or stamp duty value if higher (beyond 10% tolerance) – see Section 50C |
| Less: expenses on transfer | Brokerage, legal fees, advertisement |
| Net sale consideration | |
| Less: cost of acquisition | Purchase price + stamp duty + registration + brokerage paid on purchase |
| Less: cost of improvement | Capital additions (extra floor, major renovation) – not routine repairs |
| = Capital gain |
For property acquired before 1 April 2001, you may take the fair market value as on 1 April 2001 (not exceeding the stamp duty value on that date) as the cost.
Step 3: the rate option after Budget 2024
For transfers on or after 23 July 2024, LTCG is taxed at 12.5% without indexation. Resident individuals and HUFs selling land or building acquired before 23 July 2024 may compute tax both ways and pay the lower:
- Option A: 12.5% on gain without indexation;
- Option B: 20% on gain with indexation.
Indexed cost = cost × (CII of year of sale ÷ CII of year of purchase). CII values: 2001-02: 100; 2010-11: 167; 2015-16: 254; 2020-21: 301; 2024-25: 363; 2025-26: 376.
Worked example 1: flat bought in 2010
Example: Mr and Mrs Malhotra (50:50 owners) sell their flat in Rohini Sector 13 in October 2025 for ₹1,20,00,000 (stamp duty value ₹1,15,00,000). Brokerage on sale is ₹1,20,000. They bought it in June 2010 for ₹30,00,000 plus ₹2,00,000 stamp duty and registration. They added a room in 2015-16 for ₹5,00,000.
| Option A (12.5%, no indexation) | Option B (20%, indexed) | |
|---|---|---|
| Sale consideration | ₹1,20,00,000 | ₹1,20,00,000 |
| Less brokerage | ₹1,20,000 | ₹1,20,000 |
| Net consideration | ₹1,18,80,000 | ₹1,18,80,000 |
| Cost of acquisition | ₹32,00,000 | ₹32,00,000 × 376/167 = ₹72,04,790 |
| Cost of improvement | ₹5,00,000 | ₹5,00,000 × 376/254 = ₹7,40,157 |
| LTCG | ₹81,80,000 | ₹39,35,053 |
| Tax | ₹10,22,500 | ₹7,87,011 |
Option B (indexation) is cheaper by about ₹2.35 lakh. Each spouse reports half of the gain (₹19,67,527) and tax (before cess and any surcharge). With cess at 4%, total tax for the couple is about ₹8,18,500 – before exemptions under Section 54 or 54EC, which could reduce it to nil.
Worked example 2: flat bought in 2020
Example: Ms Arora bought a flat in Dwarka in April 2020 for ₹60,00,000 (all-in) and sells it in March 2026 for ₹82,00,000.
| Option A | Option B | |
|---|---|---|
| Cost | ₹60,00,000 | ₹60,00,000 × 376/301 = ₹74,95,017 |
| LTCG | ₹22,00,000 | ₹7,04,983 |
| Tax @ 12.5% / 20% | ₹2,75,000 | ₹1,40,997 |
For a property with modest appreciation, indexation can still be valuable. For recent purchases with high appreciation, 12.5% may win. Always compute both.
Short-term gain example
If a flat bought in January 2025 is sold in December 2025 at a profit of ₹8,00,000, the entire gain is short-term and added to the seller's income at slab rates – which could be 30% plus cess.
Exemptions that can reduce tax
- Section 54 / Section 82 (2025 Act): reinvest the LTCG in another residential house in India – see Section 54 vs 54F.
- Section 54EC / Section 85: invest up to ₹50 lakh in specified bonds within six months.
- Capital Gains Account Scheme: park the money before the return due date if you have not reinvested yet – see CGAS guide.
Advance tax and reporting
- Pay advance tax on the gain in the instalments falling after the sale; interest for earlier instalments is not charged for capital gains.
- Report in Schedule CG of ITR-2/ITR-3 with date of purchase, sale, buyer's PAN, stamp duty value and computation.
- The buyer would have deducted 1% TDS – claim it from Form 26AS.
Common mistakes
- Using the agreement value when the stamp duty value is higher by more than 10%.
- Including routine repairs or society maintenance as cost of improvement.
- Ignoring the option to pay 20% with indexation for older property.
- Not keeping purchase documents – cost may be disallowed.
Key takeaway
Compute the gain both ways for property acquired before 23 July 2024 and pick the lower tax. Then look at Section 54/54EC exemptions before paying. Our tax planning team prepares capital gains computations and reinvestment plans for property sales in Delhi NCR.
Official references
Provisions discussed (summaries in our Law Library):
- Income-tax Act, 2025 – Section 67 (corresponds to 45): Capital gains – charge
- Income-tax Act, 1961 – Section 45 (corresponds to 67): Capital gains – charge
- Income-tax Act, 2025 – Section 197 (corresponds to 112): LTCG – other assets
- Income-tax Act, 1961 – Section 112 (corresponds to 197): LTCG – other assets
Official sources to verify the current text, notifications and circulars:
Frequently asked questions
What is the tax rate on long-term capital gains on property?
12.5% without indexation (plus surcharge and cess). For land or buildings acquired before 23 July 2024, resident individuals and HUFs can instead pay 20% with indexation and choose whichever is lower.
When is property long-term?
Land or building held for more than 24 months before sale is a long-term capital asset. If sold within 24 months, the gain is short-term and taxed at slab rates.
Can I deduct brokerage and stamp duty from the gain?
Brokerage and legal costs on the sale are deducted as expenses of transfer. Stamp duty and registration paid when you bought the property form part of the cost of acquisition.
What is the Cost Inflation Index for FY 2025-26?
The CII notified for FY 2025-26 is 376 (base year 2001-02 = 100). Use the notified index for the year of acquisition and the year of sale.
Is the ₹12 lakh rebate available against capital gains on property?
No. The rebate under the new regime does not apply to tax on capital gains taxed at special rates such as 12.5% or 20%.
Is the holding period counted from booking or registration for a builder flat?
Courts and CBDT guidance generally count from the date of allotment for builder flats where the allotment letter specifies the unit and payment terms. Keep the allotment letter.
Are interest payments on a home loan part of cost?
Interest already claimed as a deduction cannot be added to cost. Pre-construction interest claimed in instalments is also excluded.
Can I set off a capital loss on shares against gain on a house?
Yes. A long-term capital loss on shares can be set off against long-term gain on a house; a short-term loss can be set off against either.
This article is general information on the law as on 10 November 2026, written for educational purposes. It is not professional advice for your case. Section numbers under the Income-tax Act, 2025 should be confirmed with the official section mapping on the Income Tax Department website before use in filings.
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