LTCG on Property Sale 2026 — The Complete Playbook With Worked Examples

What Budget 2024 changed about property LTCG

Before 23 July 2024, LTCG on Indian immovable property was uniformly taxed at 20% with indexation. The cost of acquisition was inflated using the Cost Inflation Index (CII) before computing gain. The Finance (No. 2) Act 2024 fundamentally changed this.

The new rules effective from 23 July 2024:

• Property acquired before 23 July 2024 and sold thereafter: You get a CHOICE — pay 12.5% without indexation, OR 20% with indexation, whichever is lower. This transitional dual-regime is permanent for these properties.
• Property acquired on or after 23 July 2024: Only 12.5% without indexation. No choice, no indexation.
• All other long-term assets (equity, gold, debt funds, unlisted shares): Indexation permanently removed. Flat 12.5% LTCG.
• 24-month holding period for LTCG on immovable property is unchanged. Less than 24 months = STCG, taxed at slab rate (5/20/30%).

The dual-regime decision tree

For property acquired before 23 July 2024, the decision is simple in principle: compute tax under both methods, pick the lower. In practice, the math depends on three things: how long you held the property, how much it appreciated relative to inflation, and whether you've made improvements (which also get indexed).

Method A — 12.5% without indexation

Capital gain = Sale price (less transfer costs) − (Purchase price + Improvements).

Tax = 12.5% × Gain + 4% Health & Education Cess.

Method B — 20% with indexation (pre-cutoff property only)

Indexed cost of acquisition = Purchase price × (CII of sale year ÷ CII of purchase year).

Indexed improvement = Improvement cost × (CII of sale year ÷ CII of improvement year).

Indexed gain = Sale price − Indexed cost − Indexed improvement.

Tax = 20% × Indexed gain + 4% Health & Education Cess.

The CII table you need

The Cost Inflation Index is notified annually by CBDT. Base year is FY 2001-02 with CII = 100. For FY 2025-26 (sales between April 2025 and March 2026), the CII is 376 per CBDT Notification 70/2025 dated 1 July 2025. FY 2026-27 has not yet been notified.

Four worked examples

Example 1 — Old Pune flat where indexation wins big

You bought a Pune flat in FY 2010-11 for ₹30 lakh. You spent ₹5 lakh on renovation in FY 2015-16. In January 2026 you sold it for ₹95 lakh, paying ₹1 lakh in brokerage.

Method B wins by ₹3,70,687. Indexation slashed the headline gain from ₹59L to ₹19L because the CII more than doubled (167 → 376) in 15 years. Even with the higher 20% rate, the smaller base wins.

Example 2 — Recent purchase where indexation is unavailable

You bought a Bangalore flat in August 2024 (post-cutoff) for ₹55 lakh. In January 2026 you sell it for ₹85 lakh, paying ₹50,000 in brokerage. Holding period: 17 months — but wait, that's less than 24 months, which means STCG, not LTCG.

Example 3 — Plot sale + Section 54F reinvestment in a house

You bought a Goa plot in FY 2012-13 for ₹15 lakh. You sell it for ₹60 lakh in FY 2025-26 with ₹50,000 brokerage, then reinvest ₹55 lakh in a Bangalore residential flat within the same year.

This qualifies for Section 54F because: (a) it's a long-term sale of an asset other than a residential house, (b) you reinvested the proceeds into a residential house within 1 year, and (c) you don't own more than one other residential house.

Effective rate on the original ₹44.5L gain: 1.0%. Section 54F essentially eliminates the tax when you fully reinvest into another residential house.

Example 4 — Combining Sec 54 + Sec 54EC for zero tax

You bought a Mumbai flat in FY 2007-08 for ₹40 lakh. You sell it for ₹2.2 crore in FY 2025-26 with ₹3 lakh in brokerage. You buy a new flat for ₹1.6 crore (qualifies for Sec 54) AND invest ₹50 lakh in NHAI bonds within 6 months (qualifies for Sec 54EC).

Stacking Sec 54 + Sec 54EC on the same sale is legal and common practice. The key is that Sec 54EC is capped at ₹50L per FY and the bonds must be purchased within 6 months of the sale date. The 5-year lock-in on the bonds is the trade-off.

Sections 54, 54F, 54EC — the three exemption levers

Section 54 — Residential house → another residential house

• Reinvest the GAIN (not the full sale value) into another residential house.
• Time limits: 1 year before or 2 years after the sale (purchase), or 3 years (construction).
• 3-year lock-in on the new house. Selling earlier reverses the exemption.
• Maximum exemption: ₹10 crore per assessee (Budget 2023 cap).
• Up to 2 residential houses allowed if total gain ≤ ₹2 crore (one-time lifetime option).

Section 54F — Any other long-term asset → residential house

• Sale of plot, commercial property, gold, shares.
• Reinvest the entire NET SALE CONSIDERATION (not just the gain) for full exemption.
• Partial reinvestment gives pro-rata exemption.
• Cannot own more than 1 other residential house at time of sale.
• Same time limits and ₹10 crore cap as Section 54.

Section 54EC — LTCG → specified bonds

• Invest in NHAI, REC, PFC, or IRFC bonds within 6 months of sale.
• Maximum ₹50 lakh per FY across all 54EC investments.
• 5-year lock-in (was 3 years pre-2018).
• Bonds pay ~5.25% annual interest (taxable as 'income from other sources').
• Most useful when LTCG is ₹1-50 lakh and you don't want to commit to a new property purchase.

The exit strategy framework

If you're planning a property sale, work through these decisions in order:

1. Verify holding period. Less than 24 months means STCG at slab rate (5/20/30%), no exemption sections available. Often worth delaying the sale by a few months to convert to LTCG and access 12.5%/20% rates plus exemptions.
2. Check acquisition date vs 23 July 2024. Pre-cutoff: dual-regime available, choose lower tax. Post-cutoff: 12.5% only.
3. Compute both methods. Use the calculator or work through the CII math manually. The savings can be ₹3-10 lakh on metro sales.
4. Plan reinvestment timing. Sec 54/54F windows are 1 year before OR 2 years after for purchase, 3 years for construction. Sec 54EC must be within 6 months. If you can't reinvest immediately, park the gain in a Capital Gains Account Scheme (CGAS) at any nationalised bank before the ITR filing due date.
5. Stack exemptions where possible. ₹50L into 54EC bonds plus a 54/54F house investment can cover most metro LTCGs entirely.
6. Check the surcharge layer. If your total income (LTCG plus other income) exceeds ₹50L, surcharge applies. Surcharge on LTCG is capped at 15% (Budget 2022) but full slabs apply to other income.
7. File correctly. Report under "Income from House Property" — actually under "Capital Gains" in ITR. Mention all exemption claims with supporting documents (purchase deed, sale deed, new house registration, bond certificates, CGAS deposit receipt).

Six expensive mistakes property sellers make

1. Selling at month 23 instead of month 24. The 24-month threshold is hard. A few weeks of patience can save 30-50% of the tax bill.
2. Not computing both regime methods. Defaulting to 12.5% no-indexation because "indexation was removed." Wrong for pre-cutoff property — choice still exists.
3. Missing the Sec 54EC 6-month window. The most common mistake. Bond investment MUST be within 6 months of sale date. Day 181 — too late.
4. Not parking gain in CGAS before ITR deadline. If you haven't reinvested by ITR filing date, deposit in a CGAS account at a nationalised bank. Otherwise the exemption claim is invalid.
5. Inflating the cost of improvements without records. Improvements must be capital (kitchen renovation, new flooring, structural work) not maintenance. Keep paid invoices and bank transfer records. The Assessing Officer routinely disputes this.
6. Forgetting the Sec 54F single-house condition. If you already own 2+ residential houses besides the one being purchased, Sec 54F is unavailable. Sec 54 (residential→residential) has no such condition.