Capital Gains on Selling Property in Tax Year 2026-27
- Step 1: Short-term or long-term
- Step 2: The sale value, and the stamp duty rule
- Step 3: The two computations
- Worked example: the purchase year decides which option wins
- Step 4: Exemptions
- Step 5: TDS by the buyer
- Losses
- Year labels
- Where this fits
If you sell land or a building in tax year 2026-27 after holding it for more than 24 months, the gain is long-term and taxed at 12.5% without indexation under section 197 of the Income-tax Act, 2025. Resident individuals and HUFs selling property acquired before 23 July 2024 get a second option. They can compute the gain with indexation, using the Cost Inflation Index of 384 notified for tax year 2026-27, and tax it at 20%. They pay whichever is lower. The gain can be reduced or exempted by buying a house (section 82, earlier 54) or specified bonds (section 85, earlier 54EC), or, when selling land or another non-residential asset, by buying a house (section 86, earlier 54F).
Step 1: Short-term or long-term
Under section 2(101), land and buildings are short-term if held for 24 months or less. A short-term gain is added to your income and taxed at slab rates. The rest of this page covers long-term gains.
Step 2: The sale value, and the stamp duty rule
Section 78 replaces the sale price with the stamp duty value if the price is lower, with two reliefs:
- The 110% tolerance. If the stamp duty value does not exceed 110% of the actual price, the actual price is used (section 78(1)(b)).
- Agreement date. If the agreement date and registration date differ, and part of the price was paid by the agreement date through banking or online channels, the stamp duty value on the agreement date can be used (section 78(1)(a)).
If you dispute the stamp duty value, section 78(2) allows a reference to a Valuation Officer.
Step 3: The two computations
| Default: section 197(1) | Alternative: section 197(3) | |
|---|---|---|
| Who | Everyone | Resident individuals and HUFs only |
| Which property | All land and buildings | Land or building acquired before 23 July 2024 |
| Cost | Actual cost of acquisition and improvement | Indexed cost using the Cost Inflation Index (section 72(2) and (8)) |
| Rate | 12.5% | 20% |
| Result | Section 197(3) ignores the excess, so you pay the lower of the two | |
Indexed cost = cost × (CII for the year of sale ÷ CII for the first year the asset was held, or 2001-02 if later). Improvements are indexed from the year the work was done. CBDT Notification No. 85/2026 fixes the CII for tax year 2026-27 at 384.
Expenses wholly and exclusively for the transfer, such as brokerage, are deducted in both computations (section 72(1)(a)).
Worked example: the purchase year decides which option wins
Two resident individuals each sell a flat in August 2026 for ₹1,10,00,000, paying ₹1,10,000 in brokerage. The stamp duty value is within 110% of the price.
| Flat bought in FY 2015-16 (CII 254) for ₹42,40,000 | Flat bought in FY 2005-06 (CII 117) for ₹25,00,000 | |
|---|---|---|
| Net sale value | ₹1,08,90,000 | ₹1,08,90,000 |
| Gain without indexation | ₹66,50,000 | ₹83,90,000 |
| Tax at 12.5% | ₹8,31,250 | ₹10,48,750 |
| Indexed cost (× 384 ÷ CII of purchase year) | ₹64,10,079 | ₹82,05,128 |
| Gain with indexation | ₹44,79,921 | ₹26,84,872 |
| Tax at 20% | ₹8,95,984 | ₹5,36,974 |
| Tax payable before cess and surcharge | ₹8,31,250 (12.5% wins) | ₹5,36,974 (indexation wins) |
Illustrative prices. Costs include stamp duty and registration paid on purchase. Cess at 4% applies, and surcharge applies if total income exceeds ₹50 lakh, capped at 15% on this tax.
The older the purchase, the more indexation tends to help. For recent purchases, 12.5% on the unindexed gain is often lower. To compare both computations for your own purchase date, improvements and sale price, use the property indexation calculator.
Step 4: Exemptions
| Provision | What you sell | What you must do | Main limits |
|---|---|---|---|
| Section 82 (earlier 54) | A long-term residential house | Buy one house in India within 1 year before or 2 years after the sale, or construct within 3 years | Exemption up to the cost of the new house. Cost above ₹10 crore is ignored. If the gain is ₹2 crore or less, two houses can be bought, once in a lifetime |
| Section 85 (earlier 54EC) | Long-term land or building | Invest the gain within 6 months in specified bonds (NHAI, REC or notified) | ₹50 lakh across the year of sale and the next year; 5-year lock-in; a loan against the bonds counts as encashment |
| Section 86 (earlier 54F) | Any long-term asset other than a residential house, such as a plot | Buy or construct one house within the same windows as section 82 | Exemption in proportion to net sale value invested. Not available if you already own more than one other house |
Not invested by the return date? Under sections 82(2) and 86(2), the unused amount must be deposited in the notified capital gains deposit scheme with a specified bank. This must happen before you file your return, and no later than the section 263(1) due date. Proof goes with the return. Money not used within the period is taxed in the year the three years from the sale expire.
Selling the new house. Under section 82(1), if the new house is sold within three years, its cost is reduced by the exempted gain, or treated as nil. Under section 86(7), the exempted gain is taxed in the year of that sale.
Step 5: TDS by the buyer
When the seller is resident, a buyer paying for immovable property other than agricultural land deducts TDS at 1% under section 393(1) (Table Sl. No. 3(i)). The 1% is applied to the higher of the price and the stamp duty value, where the price or stamp duty value is ₹50 lakh or more.
That TDS is credited against your final tax. It rarely covers a large long-term gain, so check advance tax. Section 425(4) waives interest for late payment on capital gains you could not have estimated, if you pay in the remaining instalments or by 31 March.
Losses
A long-term capital loss on property can be set off only against long-term gains (section 108(2)(b)). It can be carried forward for eight tax years if the return is filed by the due date. See capital loss set-off and carry forward.
Year labels
This page covers transfers on or after 1 April 2026 under the Income-tax Act, 2025. A sale completed in FY 2025-26 belongs to AY 2026-27 under the Income-tax Act, 1961, where the corresponding provisions were sections 48, 50C, 54, 54EC, 54F and 112.
Where this fits
- Run the two computations: capital gains calculator
- Stamp duty on the next purchase: stamp duty calculator
- Paying tax during the year: advance tax for tax year 2026-27
- Owning or renting next: buy vs rent
Sources. Income-tax Act, 2025, sections 2(101), 72, 78, 82, 85, 86, 108, 197, 393(1) and 425, Gazette of India, 21 August 2025. CBDT Notification No. 85/2026 (Cost Inflation Index for tax year 2026-27), 15 July 2026.