How Much Tax Do You Pay When Selling a Property in India After Union Budget 2026?

Synopsis: In this article, we break down the taxation of property sales in India by clearly explaining the difference between Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG). It also discusses the taxation of real estate properties, rules, and exemptions associated with them. 

With the Union Budget 2026, there have been no changes to the long-term and short-term capital gains (LTCG and STCG) tax rules on property sales. However, understanding how property sale taxation works remains crucial, especially as real estate transactions continue to rise.

According to IndUS Business Journal, residential property sales increased by 77% between FY2019 and FY2025. While selling a property in India can lead to significant financial gains, it also comes with important tax implications that sellers particularly NRIs must be aware of.

What Are Capital Gains?

When an individual tries to sell a property, let’s say a house, they would try to make the maximum gains by selling it for a price more than the sum of acquisition cost, maintenance or improvement cost, and transfer cost. Capital gains are the gains that are made when an asset is sold. It could be a property, gold, or even a mutual fund. And they are not tax-free.

Short-Term vs Long-Term Capital Gains

Taxes on capital gains depend on factors such as the type of asset and holding period. The holding period can be classified into two: Short-term and Long-term, and they vary depending on the type of asset. For real estate, less than 24 months is considered short-term and more than 24 months is long-term. 

• If a property is held for 24 months or less, the gains of the sale will be considered as short-term gains (STCG)
• If a property is held for more than24 months, the gains from the sale will be considered as long-term gains (LTCG)

Taxation of Properties in India

Before diving into the tax calculation of capital gains, it’s essential to understand what indexation is. Indexation is a kind of tax benefit that allows individuals to adjust the purchase cost of a property with respect to inflation. This reduces the taxable LTCG and lowers the tax payable as it increases the indexed cost of acquisition. 

• STCG Tax Rate: Short-term capital gains are taxed at the regular income tax rates.
• LTCG Tax Rate: Taxation of long-term capital gains is bit different. It takes into consideration the date of acquisition of the property.
  • If the property is acquired on or after July 23, 2024: 12.5% without indexation.
  • If the property is acquired before July 23, 2024: resident individuals may still benefit from indexation only if it results in a lower tax liability compared with the flat 12.5% rule

Example: STCG vs LTCG on Sale of a ₹1 Crore Property – If an individual sells their property at ₹1 cr, which was bought at ₹ 70 lakh. Let the transfer expenses, such as brokerage and legal fees, be ₹ 5 lakh.

Case 1: Short-Term Capital Gain (STCG)

Note: Health and education cess @ 4% will be applicable extra. The 30% tax rate applies only if the seller falls under the highest income tax slab.

Case 2: Long-Term Capital Gain (LTCG)

Option 1: LTCG at 12.5% (Without Indexation)

Note:
– Indexation benefit is not available under this option.
– Health and education cess @ 4% is applicable over and above the above tax.
– LTCG applies if the property is held for more than 24 months.

Option 2: LTCG at 20% (With Indexation)

Note:
• Indexation benefit adjusts the purchase cost for inflation.
• Health and education cess @ 4% is applicable in addition to the above tax.
• This option applies only if indexation is allowed as per the applicable rules for the property.

NRI Seller Tax Rules

Non-Resident Indians (NRIs) are also subject to capital gains tax, but with a few variations. Gains from assets held for less than 24 months are considered STCG, and if held for more than 24 months, the gains from those assets are considered as LTCG.

• STCG: Taxed based on the regular income tax slabs
• LTCG: For property in India, LTCG is taxed at 12.5% without indexation benefit. 
• Unlike resident taxpayers, NRIs cannot use indexation when calculating LTCG on property sales.
• At the time of sale, the buyer must deduct TDS at 12.5% from the full sale amount, not just the capital gain. Additionally, a surcharge applies if the NRI’s total income exceeds ₹50 lakh, and a Health and Education Cess of 4% is added to the tax plus surcharge.
• As a result, the total TDS deducted is often much higher than the actual tax owed. To recover the excess amount deducted, the NRI needs to file an Income Tax Return (ITR) in India and request a refund. This would make the total tax payable 

For Example, if an NRI sells a residential property bought at ₹60 lakh and sold at ₹1 cr in India, the LTCG would be ₹40 lakh assuming he held the property for more than 24 months. Therefore, as per the rules, LTCG will be taxed at 12.5% as indexation is not available for NRIs. This would make the tax payable ₹5 lakh.  

However, a TDS of 12.5% (When TDS is 12.5%? – If the property sold by an NRI qualifies as Long-Term Capital Asset (held for more than 24 months)) is to be deducted by the buyer on the entire sale price. Here, the TDS will be ₹12.5 lakh. Additionally, a surcharge of 10% (Charged on LTCG not on entire sale amount) is levied as the total income exceeds ₹50 lakh, and a health and education cess of 4% (It charged on LTCG+Surcharge) is levied further.

So, the LTCG tax (including surcharge and cess) comes to ₹5.72 lakh, while TDS at 12.5% (plus surcharge and cess) works out to around ₹14 lakh. The buyer will deduct this ₹14 lakh as TDS from the total sale value and pay the seller ₹86 lakh (₹1 crore minus ₹14 lakh TDS). However, the actual tax liability for the NRI on the property sale is only ₹5.72 lakh. The excess amount deducted as TDS can be claimed as a refund by filing an Income Tax Return (ITR).

Also read: Old vs New Tax Regime for FY 2026-27: Which Income Tax Slab Works Better for You?

Tax Deducted at Source (TDS) on Property Sale

For an NRI, the TDS obligation is under Section 195. The taxation basis is the capital gains tax rate (e.g., 12.5% for LTCG) plus surcharge & cess on the gains. However, since capital gains are not easily computed at the time of sale, buyers often deduct TDS on the entire sale consideration at an appropriate estimated rate (effectively ~12.5–14.95% for LTCG after surcharge/cess) unless the seller obtains a lower/nil deduction certificate from the tax authorities.

Capital Gains Exemptions

There are a few relevant exemptions associated with capital gains that everybody should know. These exemptions can be claimed for LTCGs on property.

Section 54: Capital gains won’t be taxed if the capital gains earned from the sale of a residential property are reinvested into the purchase of another residential property within prescribed time limits and this applies only to LTCG ((held more than 24 months before sale)

Section 54EC: Capital gains won’t be taxed if the capital gains earned from the sale of a property are invested into the  purchase of specific government bonds

Section 54F: Capital gains won’t be taxed if the capital gains earned from the sale of an asset other than a residential property are used to purchase a residential property.

Other Special Rules & Tax Implications 

Section 50C: Under Section 50C, if the sale value declared for the property is lower than the stamp duty set by the government, then the value of the stamp duty will be considered to calculate capital gains. This provision is aimed at curbing the undervaluation of property.

Conclusion

Understanding the difference between Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) is essential for anyone planning to sell property in India. In a rapidly evolving real estate market, informed tax planning can help maximise returns and avoid unexpected liabilities. 

Written by – Nila