Capital Gains Tax on Sale of Flat: 12.5% Rule & Section 54
Contents
If you are selling a flat in Delhi, Gurugram, Noida, Ghaziabad or Faridabad, the sale price is not your profit, and it is not what the taxman looks at. Tax is charged on the gain, and the rules for working it out changed in July 2024. The law itself was also renumbered this year. This guide explains capital gains tax on sale of flat in plain terms, with numbers, so you can plan before you sign the sale deed.
Note: This is general information, not tax advice. Your holding dates, cost records and income level change the answer, so check the final numbers with a chartered accountant.
The quick answer
- If you hold the flat for 24 months or less, the gain is short-term and is taxed at your income tax slab rate.
- If you hold it for more than 24 months, the gain is long-term and the rate is 12.5% without indexation.
- If you are a resident individual or HUF and bought before 23 July 2024, you can instead pay 20% with indexation, whichever tax is lower.
- You can reduce or remove the tax by reinvesting the gain in another house (Section 54) or in specified bonds (Section 54EC).
Short-term vs long-term: the 24-month test
The holding period decides everything else. Up to 24 months is short-term; more than 24 months is long-term. A flat sold at exactly 24 months is therefore still short-term.
| Point | Short-term (24 months or less) | Long-term (more than 24 months) |
|---|---|---|
| Tax rate | Your income slab rate | 12.5% without indexation |
| Indexation | Not available | Optional, only for purchases before 23 July 2024 |
| Section 54 / 54EC relief | None for reinvestment | Available if conditions are met |
Rates here are base rates. Surcharge and cess may be added depending on your total income, so ask your CA for the final figure. One guide notes that Budget 2025 and Budget 2026 made no changes to these rates.
12.5% vs 20% with indexation: which to pick?
This choice exists only for older purchases. It applies to a resident individual or HUF selling land or a building acquired before 23 July 2024. Everyone else, including non-residents, companies and firms, pays 12.5% without indexation, as does anyone who bought on or after that date.
How indexation works. It raises your purchase cost using the Cost Inflation Index (CII). The indexed cost is your cost multiplied by the CII of the sale year, divided by the CII of the year you first held the asset (or 2001-02, if later). The base year is 2001-02, with an index of 100.
Here are the CII values used in the examples below:
| Financial year | CII |
|---|---|
| 2016-17 | 264 |
| 2023-24 | 348 |
| 2025-26 | 376 (notified 1 July 2025) |
| 2026-27 (your sale year if you sell now) | Reported as 384 |
A caution on the 2026-27 figure. One source reports 384 under a July 2026 notification. Another says 384 appears on the Income Tax Department’s pages, but with an older notification reference. We could not confirm it from the official page, so check the department’s CII table before you file. The examples below also show the result with 376, and the conclusion does not change.
Example 1: older flat, indexation wins
You bought a Gurugram flat in FY 2016-17 for ₹60 lakh. You sell it in FY 2026-27 for ₹1.20 crore. For simplicity, assume no renovation spend and no brokerage.
| Item | Option A: 12.5%, no indexation | Option B: 20%, indexed |
|---|---|---|
| Cost used | ₹60,00,000 | ₹60,00,000 × 384/264 = ₹87,27,273 |
| Taxable gain | ₹60,00,000 | ₹32,72,727 |
| Tax (before surcharge/cess) | ₹7,50,000 | ₹6,54,545 |
Option B saves about ₹95,000. With a CII of 376, Option B’s tax is about ₹6,90,909, so it still wins by roughly ₹59,000.
Example 2: newer flat, 12.5% wins
You bought in FY 2023-24 for ₹80 lakh and sell for ₹1.20 crore.
| Item | Option A: 12.5%, no indexation | Option B: 20%, indexed |
|---|---|---|
| Cost used | ₹80,00,000 | ₹80,00,000 × 384/348 = ₹88,27,586 |
| Taxable gain | ₹40,00,000 | ₹31,72,414 |
| Tax (before surcharge/cess) | ₹5,00,000 | ₹6,34,483 |
Here the flat rate is cheaper by about ₹1.34 lakh. The rule of thumb: the longer you have held the flat and the slower its price has grown, the more likely indexation helps. Fast price growth over a short period favours the flat 12.5%. Always run both sums. Indexation usually wins for long holdings or slow appreciation, while the flat rate wins on sharp gains over a short period.
Which section numbers apply now?
You will see both old and new section numbers in articles and CA notes. The Income-tax Act, 2025 came into force on 1 April 2026 and repealed the 1961 Act. The Central Board of Direct Taxes (CBDT) says the rewrite was done without changing the underlying tax policy.
Most mappings show Section 54 as Section 82 and Section 54EC as Section 85. LTCG on land or buildings is under Section 197. The mappings are not fully consistent, though. One source gives a different number for Section 54, and another gives a different one for 54EC. Use the familiar 54 and 54EC names to understand the rules, and confirm the new numbers with your CA before filing.
Check the circle rate before you fix the price
The tax department compares your sale price with the stamp duty value, which is linked to the circle rate. The stamp duty value replaces your price only if it exceeds 110% of the actual consideration.
Example: you sell for ₹1.20 crore and the stamp duty value is ₹1.35 crore. 110% of ₹1.20 crore is ₹1.32 crore, which is below ₹1.35 crore, so ₹1.35 crore is treated as your sale value. Once you cross the 10% band, the whole difference is taxed, not just the excess over 10%. Circle rates differ across Delhi, Haryana and Uttar Pradesh, so check the rate for your exact sector or locality.
Section 54: sell a house, buy a house
Section 54 lets you claim exemption on long-term gains from a residential house if you reinvest them in another residential house. The key conditions:
- Who: Individuals and HUFs.
- Timing: Buy the new house within 1 year before or 2 years after the sale, or construct it within 3 years.
- How much to reinvest: Only the capital gain, not the entire sale value.
- Cap: The exemption is limited to the lower of the amount invested or the gain, subject to ₹10 crore.
- Lock-in: The new house must be in India and held for at least 3 years, or the exemption is reversed.
- Two houses: If the gain is ₹2 crore or less, you may reinvest in two houses, once in a lifetime.
If you sold something other than a house (a plot or shop, say), the related Section 54F has different rules. It needs the entire net sale consideration reinvested, not just the gain.
The new home can be anywhere in India. Many NCR sellers move within the region, for example to new projects in Gurugram or new projects in Noida. You can also read the New Delhi locality guide or search all properties to compare options. Check RERA registration and possession dates carefully, because a delayed handover can make you miss the Section 54 deadline.
Section 54EC: bonds instead of a new home
If you do not want another property, Section 54EC is the alternative. You invest the gain from land or a building in specified NHAI or REC bonds within six months. Bonds of PFC and IRFC are also listed.
- Cap: The exemption is capped at ₹50 lakh, with a five-year lock-in. The combined investment across the sale year and the next financial year cannot exceed ₹50 lakh. Some websites claim you can stretch this to ₹1 crore by splitting across two years. Treat ₹50 lakh per sale as your ceiling unless your CA confirms otherwise.
- Lock-in: The bonds cannot be sold, transferred or used as loan collateral. If you do, the exemption is withdrawn.
- Interest: Interest is around 5% a year and is fully taxable. Check the current rate with the issuer.
- Deadline: The six months run from the date of transfer. CGAS is not part of this route; it is a direct investment.
Section 54 vs Section 54EC
| Point | Section 54 | Section 54EC |
|---|---|---|
| Reinvest in | Another residential house in India | Specified bonds (NHAI, REC, PFC, IRFC) |
| Time limit | 1 year before to 2 years after (purchase); 3 years (construction) | 6 months |
| Maximum | ₹10 crore | ₹50 lakh |
| Lock-in | 3 years | 5 years |
| Return on money | Depends on the property | Fixed, taxable interest |
CGAS: when you have not reinvested by the filing date
The Capital Gains Accounts Scheme (CGAS) is a holding account for your gain while you hunt for a house. If you have not reinvested by the return due date, you must deposit the unused gain into a CGAS account before that date. The due date is generally 31 July for most individuals. Your return for this sale will be filed in 2027.
The risk is on the other side of the clock. Any amount still unused when the allowed period ends becomes taxable as capital gains in that year. Missing the deposit deadline can cost you the exemption altogether. Money left in an ordinary savings account does not count.
Worked example: a Gurugram flat sold, three ways to reinvest
Take Example 1 again. You chose the indexed route, so your gain is about ₹32.73 lakh and the tax with no exemption is about ₹6.55 lakh at 20%. Here is how different choices change the tax (before surcharge and cess):
| What you do | Exempt amount | Taxable gain | Approx. tax at 20% |
|---|---|---|---|
| Do nothing | ₹0 | ₹32,72,727 | ₹6,54,545 |
| Buy a new flat costing ₹90 lakh within the window (Section 54) | ₹32,72,727 (only the gain needs reinvesting) | ₹0 | ₹0 |
| Buy a smaller home for ₹20 lakh of gain (Section 54) | ₹20,00,000 | ₹12,72,727 | ₹2,54,545 |
| ₹15 lakh in 54EC bonds plus ₹10 lakh into a new home | ₹25,00,000 | ₹7,72,727 | ₹1,54,545 |
The second row shows why Section 54 is often misread: you do not have to spend the full ₹1.20 crore sale price on the new home. In the last row, the 54EC money is locked for five years. Section 54EC can be combined with Section 54. The numbers above are illustrations, not a forecast of your tax bill.
Practical checklist before you sell
- Confirm the dates. Work out your holding period from the purchase documents and see whether you cross 24 months. Also check whether you bought before or after 23 July 2024.
- Collect the cost records. You need the purchase price, registration cost and any documented improvement spend. Capital gains are computed after deducting the cost, any improvement cost and expenses on transfer.
- Compare both tax routes if you bought before 23 July 2024.
- Check the circle rate so your price does not trip the 110% test.
- Expect TDS. The buyer deducts 1% TDS on the full sale consideration when it, or the stamp duty value, is ₹50 lakh or more. This is not the final tax; it is credited when you file.
- Set the deadlines. Note the 6-month date for 54EC, the 2-year and 3-year dates for Section 54 and the return due date for CGAS.
- File the right form. For capital gains without business income, ITR-2 is generally the form.
What is still uncertain
- The CII for FY 2026-27 should be checked on the official table, as explained above.
- New section numbers under the Income-tax Act, 2025 vary between secondary sources.
- Bond interest rates change by issuer and by series.
- Budgets can alter exemption caps, so verify the limits close to your sale date.
Plan the tax before you accept an offer, not after. A short conversation with a CA, armed with your purchase documents and the sale price, usually saves more than any later fix.
Frequently asked questions
What is the capital gains tax on sale of a flat held for more than two years?
A flat held for more than 24 months gives long-term gains taxed at 12.5% without indexation. If you are a resident individual or HUF who bought before 23 July 2024, you can choose 20% with indexation instead, whichever is lower.
How long must I hold a flat for the gain to be long-term?
You must hold it for more than 24 months; 24 months or less makes the gain short-term and it is taxed at slab rates.
Do I have to reinvest the whole sale price under Section 54?
No. You need to reinvest only the capital gain, not the entire sale value, to fully exempt it. The exemption is capped at ₹10 crore.
What is the limit and lock-in for Section 54EC bonds?
You can invest the gain in NHAI or REC bonds within six months, with the exemption capped at ₹50 lakh and a five-year lock-in.
What is CGAS and when must I deposit in it?
The Capital Gains Accounts Scheme holds unused gains until you buy or build a house. The deposit must be made on or before the due date for filing your return.
Can I buy two flats with my capital gain?
Yes, if the long-term gain is ₹2 crore or less, you may reinvest in two houses, but only once in a lifetime.
Does the circle rate affect my capital gains tax?
Yes. If the stamp duty value exceeds 110% of your actual sale price, the stamp duty value is used to compute the gain; otherwise your actual price is used.
Sources
- Capital Gains Tax on the Sale of Property (ClearTax)
- Capital Gains Tax on Property Sale (FY 2026-27) – TaxGarden
- Capital Gains Tax on Property Sale 2026: Rates & Exemptions (IncorpX)
- Property Capital Gains Tax Calculator 2026 (FinCalculator)
- Capital Gains Under New Income Tax Act 2025 Explained (Audcrix)
- Income Tax Act 2025 Old vs New Section Map (BVACA)
- Old vs New Income Tax Sections 2026 (TaxGarden)
- Old IT Act to New Income Tax Act 2025 Transition Guide (TaxFetch)
- Section 54 of Income Tax Act (Tax2win)
- Section 54 of Income Tax Act (ClearTax)
- Section 54 – Save Tax on Property Sale (Ganak)
- What is the Section 54 exemption? (CA Vijay Singh)
- Section 54 of the Income Tax Act (Bajaj Finserv)
- Capital Gains Exemption Under Sections 54, 54F and 54EC (TaxGarden)
- Section 54EC – Deduction on LTCG Through Capital Gain Bonds (ClearTax)
Updated 20 October 2026. This article is general information, not legal or financial advice; check current rules and project details before you decide.
