LTCG on Property in India 2026 - Long-Term Capital Gains Tax on Real Estate Explained

LTCG vs STCG on Property: The 24-Month Rule

Capital gains on property are classified as short-term or long-term based on the holding period:

• Short-Term Capital Gains (STCG): Property held for 24 months or less. Taxed at income tax slab rates (can be 20%–30% for higher earners).
• Long-Term Capital Gains (LTCG): Property held for more than 24 months. Taxed at 12.5% (without indexation, post Budget 2024).

The holding period is counted from the date of registration of purchase to the date of registration of sale. Note: date of booking or possession is generally not the starting point unless you can demonstrate ownership from an earlier date.

Budget 2024 Changes: The Indexation Removal and Choice Option

The Union Budget 2024 (Finance Act 2024) fundamentally changed LTCG taxation on property, effective 23 July 2024:

• New default (post-July 2024 purchases): LTCG on property is taxed at 12.5% without indexation. This applies whether the property is sold years or decades later.
• Transitional option (pre-July 2024 purchases): For properties purchased before 23 July 2024, sellers can choose the better of two methods for their tax computation:
  1. 12.5% on LTCG without indexation, or
  2. 20% on LTCG after applying the Cost Inflation Index (CII) to the purchase cost

This transitional choice is a significant benefit for older property owners who purchased many years ago, because inflation-adjusted purchase costs under the old method can be much higher, significantly reducing taxable gain.

Cost Inflation Index (CII) for LTCG Calculation

The CII is published by CBDT each year. To compute indexed cost: Indexed Cost = Original Cost × (CII of sale year / CII of purchase year).

LTCG Calculation: Step-by-Step Example

Consider a property bought in FY 2015-16 (CII: 254) for ₹40 lakh and sold in FY 2025-26 (CII: 363) for ₹1.2 crore. Transfer expenses (brokerage, legal, stamp) were ₹2 lakh.

In this example, the new 12.5% method results in lower tax (₹9.75 lakh vs ₹12.17 lakh). However, this will not always be the case - compare both methods for your specific numbers, especially for very old properties with low original purchase price.

Section 54: Reinvest in Residential Property to Save Tax

Section 54 is the most widely used LTCG exemption for property sellers:

• Who can claim: Individuals or HUFs selling a residential house (land + building). Not applicable for commercial property or plots.
• How to claim: Reinvest the LTCG amount (not the full sale proceeds) in a new residential property in India.
• Time limit: Purchase the new house 1 year before or 2 years after sale, or construct it within 3 years of sale.
• Cap (post FY 2024-25): Maximum exemption is ₹10 crore. Gains reinvested beyond ₹10 crore are taxable.
• Only one property: From FY 2019-20, you can claim Section 54 exemption by buying only one new residential house (not two, except for exceptional circumstances for very small gains).
• Capital Gains Account Scheme (CGAS): If the new property is not purchased before the ITR due date, deposit the unused LTCG amount in CGAS and withdraw when property is acquired.

Example: You sell a property with LTCG of ₹60 lakh. You buy a new house for ₹70 lakh within 2 years. Your entire LTCG of ₹60 lakh is exempt (the new property cost exceeds the LTCG). Tax payable: ₹0.

Section 54EC: Invest in Capital Gain Bonds

If you do not wish to buy another property, Section 54EC offers an alternative exemption route:

• Investment vehicle: NHAI or REC bonds (designated capital gain bonds).
• Time limit: Invest within 6 months of sale.
• Maximum investment: ₹50 lakh per financial year.
• Lock-in: 5 years. Selling or converting before 5 years withdraws the exemption.
• Interest: Approximately 5%–5.5% per annum; interest is taxable at slab rate.
• Cost of exemption: Low interest rate compared to market, plus 5-year lock-in, is the trade-off for saving the 12.5% LTCG tax.

Example: LTCG = ₹45 lakh. Invest ₹45 lakh in REC capital gain bonds within 6 months. Tax saving: ₹45 lakh × 12.5% = ₹5,62,500. But over 5 years, you lose the opportunity to earn higher returns on that ₹45 lakh. This trade-off must be evaluated individually.