In this guide
Selling land, a flat, house, office or shop can create taxable capital gains, but the tax is not calculated simply as “sale price minus purchase price.” Practical questions arise around acquisition cost, renovation expenses, holding period, indexation, inherited property, stamp-duty value and TDS. The transcript correctly highlights these recurring issues.
For a property sold during FY 2025-26, such as in March 2026, the resulting capital gain is reported in AY 2026-27 under the Income-tax Act, 1961.
How Is Capital Gain on Property Calculated?
The basic computation is:
Full value of consideration
Less: eligible transfer expenses
Less: cost of acquisition
Less: eligible cost of improvement
= Capital Gain
Section 48 permits deduction of expenditure incurred wholly and exclusively in connection with the transfer, along with acquisition and improvement costs.
Typical eligible costs may include:
- Brokerage paid for sale;
- Legal expenses directly connected with transfer;
- Document-related transfer expenses;
- Original purchase price;
- Stamp duty and registration cost incurred on acquisition; and
- Genuine capital improvements supported by records.
Routine repairs and maintenance should not automatically be classified as improvement expenditure merely to reduce capital gains.
For capital-gain and ITR assistance:
Short-Term vs Long-Term Capital Gain on Property
For immovable property, the important holding-period threshold is 24 months.
A property held for not more than 24 months is generally a short-term capital asset. Property held beyond the prescribed threshold qualifies as long-term. General short-term property gains are added to taxable income and taxed at the applicable normal rates.
Long-term property gains transferred on or after 23 July 2024 are generally taxable at 12.5% without indexation, subject to the special grandfathering relief discussed below.
Property Purchased Before 23 July 2024: Indexation Relief
This is one of the most important rules for property sellers in AY 2026-27.
Where a resident individual or resident HUF sells long-term land or a building acquired before 23 July 2024, the law protects the taxpayer if the new 12.5% method creates a higher tax liability.
In practical terms, compare:
| Method | Tax treatment |
|---|---|
| New method | 12.5% on LTCG without indexation |
| Grandfathered old method | 20% after eligible indexation |
| Tax payable | Lower result, through statutory grandfathering |
The benefit is specifically restricted to qualifying land/building cases and does not generally extend to non-residents, firms or companies.
For FY 2025-26, the notified Cost Inflation Index is 376.
Can Home-Loan Interest Be Added to Property Cost?
This requires more care than the simple rule often circulated online.
Section 48 expressly provides that acquisition or improvement cost cannot include interest for which deduction has already been claimed under Section 24(b) or Chapter VI-A.
Therefore, double deduction is clearly prohibited.
However, the reverse proposition—that every rupee of home-loan interest never claimed earlier automatically becomes acquisition cost—is too broad. Whether unclaimed borrowing cost can legitimately be capitalised depends on the nature of expenditure, facts and applicable legal treatment.
Taxpayers should therefore not add years of unclaimed loan interest to property cost without a proper review.
What Counts as Cost of Improvement?
Capital expenditure that creates a lasting addition or alteration to the property may qualify.
Examples can include:
- Additional floor construction;
- New rooms;
- Structural reconstruction;
- Boundary walls;
- Major permanent installations; and
- Significant capital renovation.
Maintain invoices, contractor bills, bank-payment evidence, approvals and before/after documentation wherever possible.
A valuation report can support a position where historical documentation is incomplete, but a valuation report does not automatically prevent the Assessing Officer from asking for evidence.
For scrutiny and capital-gain queries:
Property Acquired Before 1 April 2001
Old properties receive another important computation option.
Where the property was acquired before 1 April 2001, the taxpayer can generally use the eligible fair market value as on 1 April 2001 instead of historical acquisition cost where beneficial.
For land or buildings, the FMV adopted for this purpose cannot exceed the stamp-duty value as on 1 April 2001, where such value is available.
Capital improvement expenditure incurred before 1 April 2001 is generally ignored under the current cost-of-improvement framework.
What Happens With Gifted or Inherited Property?
A qualifying gift or transfer under a will does not ordinarily trigger capital gains merely because ownership changes.
When the recipient eventually sells the property, however, the tax calculation generally goes back to the previous owner’s cost.
Section 49 provides that property received through gift, will, succession or inheritance generally carries the previous owner’s acquisition cost, together with eligible improvement expenditure.
The previous owner’s holding period is also considered when determining whether the recipient’s eventual gain is short-term or long-term.
Do Not Ignore Section 50C Stamp-Duty Value
A major practical issue missing from many simple calculations is Section 50C.
If the declared sale consideration is lower than the property’s stamp-duty value, the stamp-duty value can be treated as the deemed sale consideration for capital-gain computation.
There is a tolerance rule where the stamp-duty value does not exceed 110% of the actual consideration.
This means sellers should compare the agreement value with the applicable circle/stamp value before finalising their tax computation.
Property TDS: Buyer Must Check the ₹50 Lakh Rule
When property other than specified rural agricultural land is purchased from a resident seller, Section 194-IA generally requires the buyer to deduct 1% TDS where the sale consideration or stamp-duty value is ₹50 lakh or more.
The 1% is calculated on the consideration or stamp-duty value, whichever is higher. For transactions involving multiple buyers or sellers, consideration is aggregated under the amended rule.
For an NRI seller, Section 194-IA does not apply; Section 195 requires separate analysis.
Which ITR Should Be Filed After Selling Property?
For AY 2026-27, an individual/HUF with property capital gains and no business or professional income will generally use ITR-2. If business or professional income is also present, ITR-3 may apply.
ITR-1’s limited capital-gain facility relates to eligible Section 112A gains and does not make it suitable for ordinary property capital gains.
For tax planning before completing a property sale:
Frequently Asked Questions
What is the LTCG tax rate on property in 2026?
Generally 12.5% without indexation for qualifying long-term transfers, subject to grandfathering relief for eligible resident individuals/HUFs holding land or buildings acquired before 23 July 2024.
Can renovation expenses reduce capital gain?
Yes, genuine capital improvements can qualify. Routine repairs or unsupported estimates should not automatically be claimed.
Can I claim both home-loan interest deduction and add the same interest to property cost?
No. Interest already claimed under Section 24(b) or Chapter VI-A cannot again form part of acquisition or improvement cost.
What cost is used for inherited property?
Generally, the cost to the relevant previous owner is carried forward, subject to the special rules for pre-1 April 2001 assets.
Is TDS calculated on the net amount received by the seller?
No. Property TDS and capital-gain computation are based on statutory gross-value rules; TDS is merely a tax credit available to the seller.
Can property capital gains be saved by reinvestment?
Potential exemptions may be available under provisions such as Sections 54, 54F or 54EC depending on the property sold, taxpayer, reinvestment asset and statutory timelines. The exemption should be planned before deploying the sale proceeds.
