The Two Types of Capital Gain on Property
**Short-Term Capital Gain (STCG):** Property held for less than 24 months. Taxed as ordinary income at your tax slab rate (30% for high income). No indexation benefit.
**Long-Term Capital Gain (LTCG):** Property held for 24 months or more. New rule (from Budget 2024): LTCG taxed at 12.5% without indexation. For properties acquired before 23 July 2024: buyer can choose between 12.5% (no indexation) and 20% (with indexation) — whichever results in lower tax.
The Formula
Capital Gain = Sale Price − (Indexed Purchase Price + Improvement Costs + Transfer Expenses)
Indexed Purchase Price = Purchase Price × (CII for year of sale / CII for year of purchase)
Cost Inflation Index (CII) is published annually by the Income Tax Department.
Worked Example 1: Recent Purchase (2022–2025)
Plot purchased: January 2022, ₹8 lakhs. Plot sold: March 2025, ₹15 lakhs.
Holding period: 3 years 2 months = LTCG.
**Without indexation (12.5%):** LTCG = 15 − 8 = 7 lakhs. Tax = 12.5% × 7 = ₹87,500.
**With indexation (20%):** CII 2022: 331, CII 2025: 363 (assumed). Indexed cost = 8 × (363/331) = ₹8.77 lakhs. LTCG = 15 − 8.77 = 6.23 lakhs. Tax = 20% × 6.23 = ₹1,24,600.
Without indexation is better here. Tax: ₹87,500.
Worked Example 2: Long-Term Purchase (2010–2025)
Plot purchased: 2010, ₹5 lakhs. Sold 2025, ₹40 lakhs. Holding: 15 years = LTCG.
**Without indexation (12.5%):** LTCG = 40 − 5 = 35 lakhs. Tax = 12.5% × 35 = ₹4,37,500.
**With indexation (20%):** CII 2010: 167, CII 2025: 363. Indexed cost = 5 × (363/167) = ₹10.87 lakhs. LTCG = 40 − 10.87 = 29.13 lakhs. Tax = 20% × 29.13 = ₹5,82,600.
Without indexation wins again. Tax: ₹4,37,500.
Note: For very long-hold properties where indexation dramatically reduces the cost, the 20% + indexation route may sometimes win. Always calculate both.
TDS on Property Sale
Buyer deducts TDS at 1% for Indian seller (if sale value ≥ ₹50 lakhs). For NRI seller: buyer deducts TDS at 20% LTCG rate or 30% STCG rate on the full sale price (not just the gain). NRI must file ITR to claim refund of excess TDS.