Capital Gains Tax on Property Sale for Residents: LTCG & STCG Rates

When a resident individual or HUF sells immovable property in India, the tax treatment depends primarily on how long the property was held, and separately on when it was originally acquired if you want the benefit of a transitional safeguard introduced after the Budget 2024 changes. Here is how the computation actually works.

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

Immovable property held for more than 24 months from the date of acquisition is a long-term capital asset. Held for 24 months or less, it is short-term. This distinction matters because the two are taxed on completely different bases.

How LTCG Is Computed: 12.5% Without Indexation

For long-term property sales, the standard method computes the gain as sale consideration less the actual cost of acquisition and improvement (without adjusting the cost for inflation), taxed at a flat 12.5% plus applicable surcharge and cess. This removed the earlier practice of indexing the purchase cost to inflation before computing the gain, which generally raises the taxable gain compared to the older method for properties held a long time.

The Pre-July 23, 2024 Indexation Safeguard

To avoid penalising sellers who bought property years ago expecting to use indexation, a safeguard applies specifically to resident individuals and HUFs selling land or a building (not other asset classes) that was acquired before July 23, 2024. In these cases, the tax computed under the new 12.5%-without-indexation method is compared against the tax that would have resulted under the old 20%-with-indexation method, and the seller pays whichever is lower. This comparison is done automatically as part of the computation; it is not an election you separately opt into, but it does mean the old cost inflation index figures still matter for these transactions when working out which method is cheaper.

Property acquired on or after July 23, 2024 does not get this comparison; it is taxed at the flat 12.5% rate on the actual (non-indexed) gain.

Short-Term Capital Gains: Just Slab Rate

If the property was held for 24 months or less, there is no special rate at all. The gain (sale price less cost, with no indexation available for short-term assets in any case) is added to the seller's other income for the year and taxed at their normal slab rate, which can be considerably higher than 12.5% for taxpayers in the higher slabs.

Section 194-IA: 1% TDS Deducted by the Buyer

When a resident buys immovable property (other than agricultural land) from a resident seller for a consideration of Rs 50 lakh or more, the buyer must deduct TDS at 1% of the sale consideration or the stamp duty value, whichever is higher, and deposit it using Form 26QB. Unlike a purchase from an NRI seller, the buyer here does not need a TAN; a PAN is sufficient, and there is a clear Rs 50 lakh threshold below which no TDS applies at all.

This is a meaningfully simpler regime than what applies when the seller is an NRI, where TDS applies with no minimum threshold, at rates tied to the nature and slab of the gain rather than a flat 1%, and the buyer must separately obtain a TAN; see our TAN application guide for buyers purchasing from an NRI if that situation applies to you instead. If you are a resident seller, the 1% deducted under Section 194-IA is simply an advance credit against your final tax liability, adjusted when you file your return; it is not itself the final tax on the gain.

Exemptions That Can Reduce or Eliminate LTCG Tax

• Section 54: Available to individuals and HUFs selling a long-term residential house, if the capital gains (not the full sale proceeds) are reinvested in one residential house in India within the prescribed time before or after the sale. There is a cap on the exemption available for very large gains, so this should be modelled carefully for high-value sales.
• Section 54EC: Allows exemption by investing long-term capital gains, up to Rs 50 lakh, in specified capital gains bonds within 6 months of the transfer, with a lock-in period on the bonds. Useful where reinvesting in another house isn't the intention.
• Section 54F: Applies where the asset sold is not a residential house (for example, a plot of land) but the gains are reinvested in a residential house, subject to conditions on not owning multiple other houses at the time.

These exemptions come with strict reinvestment windows and conditions; missing a deadline by even a few days can forfeit the exemption entirely, so this is worth planning before the sale closes, not after.

A Practical Example

A resident individual bought a flat in June 2020 for Rs 60 lakh and sells it in September 2026 for Rs 1.2 crore. The holding period exceeds 24 months, so it is long-term. Since the property was acquired before July 23, 2024, the safeguard comparison applies: the tax office computes the gain both ways (12.5% on Rs 60 lakh flat gain, and 20% on the indexed gain using the applicable cost inflation index), and the seller pays whichever amount is lower. Separately, since the sale value exceeds Rs 50 lakh, the buyer deducts 1% TDS (Rs 1.2 lakh) under Section 194-IA and deposits it via Form 26QB; this is credited against the seller's final tax liability when the return is filed.

If this sale were instead by an NRI seller, none of the Section 194-IA mechanics above would apply; the buyer would need a TAN and would deduct tax under a different provision, with no Rs 50 lakh threshold. Always confirm the seller's residential status before assuming which regime governs a transaction.