Short-Term vs Long-Term: The Key Distinction
For property (including land/plots), the holding period threshold is 24 months (2 years):
This distinction matters enormously for the tax you'll pay.
Short-Term Capital Gains on Property
STCG on property is added to your income and taxed at your applicable income tax slab rate (10%, 20%, or 30% depending on total income).
Example: You buy a plot for ₹15 lakhs in January 2024 and sell it for ₹20 lakhs in October 2024 (held 9 months). STCG = ₹5 lakhs. If you're in the 30% tax bracket, tax = ₹1.5 lakhs.
There's no exemption available on STCG from property — you pay in full.
Long-Term Capital Gains on Property
Post-Finance Act 2024, the LTCG tax rate on property is 12.5% without indexation benefit. Before Budget 2024, LTCG was 20% with indexation.
**Budget 2024 change:** The government removed the indexation benefit for LTCG on property sales. LTCG is now taxed at flat 12.5% on actual profit (sale price minus cost without inflation adjustment). This is a significant change that reduces the tax benefit of long-hold property investment.
However: property purchased before 23 July 2024 can be taxed under the old regime (20% with indexation) — buyers of pre-2024 property should calculate both options and choose the lower tax.
How to Calculate LTCG
Sale price: ₹30 lakhs. Cost of acquisition: ₹15 lakhs (bought 3 years ago). Improvement cost: ₹0.
LTCG = ₹30L - ₹15L = ₹15 lakhs. Tax = 12.5% of ₹15L = ₹1.875 lakhs.
Add: surcharge and cess (for income above ₹50 lakhs, a surcharge applies).
Legal Ways to Save LTCG
**Section 54F:** If you sell a plot (not a house) and invest the net sale proceeds in a residential house within 2 years of sale (or 3 years if constructing), you get full exemption on LTCG. This is the most popular and legitimate LTCG saving tool.
**Section 54EC:** Invest the LTCG amount (not full proceeds) in specific government bonds (NHAI or REC bonds) within 6 months of sale. Maximum investment: ₹50 lakhs. The invested amount is exempt from LTCG tax. The bonds lock in your money for 5 years at approximately 5% interest.
**Carry forward losses:** LTCG losses can be set off against LTCG gains in the same year or carried forward for 8 years to offset future gains.
NRI Considerations
For NRIs selling Indian property: TDS at 12.5% (LTCG) or 30% (STCG) is deducted by the buyer from the sale proceeds. NRIs must file an Indian income tax return for the year of sale to claim refunds or apply exemptions (54F, 54EC). Repatriation of proceeds requires specific RBI compliance — a topic covered separately in our NRI investment section.