A family sells a flat in Kondapur for Rs 1.5 crore, bought in 2017, to move into a larger home in Kokapet. Before the sale deed is registered, the buyer mentions that 1% will be deducted as TDS, and a neighbour insists that indexation "has been abolished". Both statements need to be tested against the statute.
Short answer. For a resident individual or HUF (Hindu Undivided Family), a residential property held for more than 24 months is a long-term capital asset. Gains on transfers on or after 23 July 2024 are taxed at 12.5% without indexation; for land or buildings acquired before that date, a resident individual or HUF may effectively obtain the lower of that tax and the earlier 20% with-indexation tax. The gain can be reduced or exempted by reinvestment in a residential house (old Section 54) or in specified bonds (old Section 54EC), subject to conditions and caps.
Educational note: this article is general information based on the statutory text as read on 7 November 2026. It is not professional advice and does not address any individual's facts.
Which Act applies to your sale?
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026, and the "tax year" replaces the "previous year" and "assessment year" vocabulary. As a working rule, a transfer completed up to 31 March 2026 is assessed under the 1961 Act; a transfer on or after 1 April 2026 falls under the 2025 Act. Where a reinvestment window straddles 31 March 2026, the transitional and savings provisions need a specific check (confirm).
| Subject | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Charge of capital gains | Section 45 | Section 67 |
| Mode of computation, indexed cost | Section 48 | Section 72 (confirm) |
| Cost of acquisition and improvement | Section 55 | Section 90 (confirm) |
| Stamp duty value as consideration | Section 50C | Section 78 (confirm) |
| Residential house reinvestment | Section 54 | Section 82 |
| Specified bonds | Section 54EC | Section 85 |
| Reinvestment of non-house assets | Section 54F | Section 86 |
| Tax on long-term capital gains | Section 112 | Section 197 |
| TDS on transfer of immovable property | Section 194-IA | Section 393(1), Table Sl. No. 3(i) |
| Return due date (deposit deadline) | Section 139(1) | Section 263(1) |
Sections 82, 85, 86, 197 and the Section 393 entry were read on the Income Tax Department's pages; entries marked (confirm) were taken from commercial concordances and must be checked against the Act before reliance.
Holding period: when is the gain long-term?
Under the 2025 Act, a capital asset held for not more than 24 months before transfer is short-term (Section 2(101)(a)); a long-term capital asset is one that is not short-term (Section 2(67)). The 24-month test for immovable property carried over from Section 2(42A) of the 1961 Act. The period runs from the date of acquisition to the date of transfer, so the dates in the agreement, possession and registration deserve care. Short-term gains are added to ordinary income and taxed at slab or regime rates, and the reinvestment sections discussed below apply only to long-term gains.
The LTCG rate and the 23 July 2024 position
The Finance (No. 2) Act, 2024 reset the long-term capital gains (LTCG) rate to 12.5% without indexation for transfers on or after 23 July 2024. Section 197 of the 2025 Act carries this rate. For land or buildings acquired before 23 July 2024, it also contains a formula that compares the 12.5% tax with a 20% tax computed on indexed cost, and ignores the difference, which benefits resident individuals and HUFs. The Department's own explanatory page states the grandfathering applies only to resident individuals and HUFs and only to land or buildings acquired before 23 July 2024. Companies, firms and non-residents do not receive it.
Two points follow. First, a property bought on or after 23 July 2024 never receives indexation. Second, the choice is not a matter of preference; the computation under the section yields the lower tax. Surcharge and 4% health and education cess apply on top (rates to be confirmed for the relevant tax year).
Computing the gain
Capital gain equals the full value of consideration, less expenditure wholly and exclusively connected with the transfer (brokerage, legal fees), less cost of acquisition, less cost of improvement.
- Cost of acquisition includes the price paid, stamp duty and registration charges borne by the buyer, and (for a property acquired by gift, will or inheritance) the previous owner's cost under the deemed-cost rule (Section 49 / Section 73, confirm). The holding period of the previous owner is also counted.
- Cost of improvement means capital expenditure incurred on additions or alterations, supported by bills. Routine repairs and maintenance are not improvements.
- Stamp duty value. Where the stamp duty value exceeds the consideration, the stamp duty value may be taken as deemed consideration (Section 50C / Section 78, confirm), a point that frequently matters in Hyderabad where registered values and market values diverge.
- For assets acquired before 1 April 2001, the fair market value on that date can be adopted as cost (confirm in Section 72).
Reinvestment relief
| Feature | Residential house (Section 54 / Section 82) | Specified bonds (Section 54EC / Section 85) | Non-house asset, e.g. a plot (Section 54F / Section 86) |
|---|---|---|---|
| Who | Individual, HUF | Any assessee | Individual, HUF |
| Original asset | Residential house | Land or building, or both | Long-term asset other than a residential house |
| Gain eligible | Long-term gain | Long-term gain | Long-term gain |
| Investment | One residential house in India (two houses if gain does not exceed Rs 2 crore, once in a lifetime) | Bonds of NHAI, REC or other notified bonds, redeemable after five years | One residential house in India |
| Time | Purchase from one year before to two years after transfer; construction within three years | Within six months of transfer | Same as Section 54 |
| Limits | Cost of new house above Rs 10 crore ignored | Rs 50 lakh across the year of transfer and the next tax year | Net consideration (not gain) must be invested; cost above Rs 10 crore ignored |
| Lock-in / clawback | Sale of new house within three years withdraws the exemption | Transfer, conversion or loan against the bond within five years | Sale of new house within three years; owning more than one other house on the transfer date, or buying another within the specified period, defeats the claim |
HUDCO bonds issued on or after 1 April 2025 have been notified for the 1961 Act's Section 54EC (Notification No. 31/2025, dated 7 April 2025); whether the same bonds qualify under Section 85 of the 2025 Act is to be confirmed.
Capital Gains Account Scheme (CGAS)
If the gain (or, under Section 54F/86, the net consideration) is not yet invested when the return is due, the unutilised amount must be deposited in a specified bank before the return due date, and the proof attached to the return. That deposit is treated as part of the cost of the new asset. If it is not used within the three-year period, the unspent amount is taxed as capital gain of the year in which the three years expire, and may be withdrawn under the notified scheme. The 2025 Act refers only to "the scheme notified by the Central Government"; the scheme commonly called the Capital Gains Accounts Scheme, 1988 is the one most practitioners use (confirm that it continues to operate unchanged).
Worked example (illustrative)
Assumptions, not real facts. Resident individual; apartment in Kondapur acquired 1 August 2017 for Rs 60,00,000 including stamp duty and registration; no improvements; sold on 15 January 2027 (tax year 2026-27, so the 2025 Act applies) for Rs 1,50,00,000; stamp duty value equals the consideration; brokerage and legal costs Rs 1,50,000; held for over 24 months; surcharge and cess ignored. For the indexed route, an assumed indexation factor of 1.35 is used; the actual factor is the ratio of the notified Cost Inflation Index values and must be taken from the Department's notification.
| Step | Route 1: 12.5%, no indexation | Route 2: 20%, indexed |
|---|---|---|
| Sale consideration | 1,50,00,000 | 1,50,00,000 |
| Less transfer expenses | 1,50,000 | 1,50,000 |
| Less cost (Route 2: Rs 60 lakh x 1.35) | 60,00,000 | 81,00,000 |
| Long-term capital gain | 88,50,000 | 67,50,000 |
| Tax | 11,06,250 | 13,50,000 |
On these assumptions the 12.5% computation is lower, so the tax before any exemption is Rs 11,06,250. With a longer holding period or a higher index factor, Route 2 could win; the comparison must be run for each property.
Reinvestment outcomes (taxed at 12.5% on the 88,50,000 gain, before surcharge and cess):
| Scenario | Exempt gain | Taxable gain | Tax |
|---|---|---|---|
| No reinvestment | 0 | 88,50,000 | 11,06,250 |
| New house bought for Rs 1,00,00,000 (Section 54/82) | 88,50,000 (lower of gain and cost) | 0 | 0 |
| New house bought for Rs 60,00,000 | 60,00,000 | 28,50,000 | 3,56,250 |
| Bonds of Rs 50,00,000 (Section 54EC/85), no house | 50,00,000 | 38,50,000 | 4,81,250 |
A combination can be considered, but each section's own conditions must be met, and the Section 54 exemption is limited to the gain, not the whole sale price.
TDS on sale by a resident
The buyer, not the seller, deducts the tax. Under Section 194-IA of the 1961 Act, the buyer deducts 1% of the sum paid on a transfer of immovable property other than agricultural land, where the consideration is Rs 50 lakh or more, files Form 26QB and issues Form 16B. Under the 2025 Act the corresponding provision is Section 393(1), Table Sl. No. 3(i), and the Department's Form 141 FAQ describes a unified Form 141 (Schedule B replaces Form 26QB) for tax year 2026-27 onward, with a TDS certificate in Form 132 from TRACES (TRACES = TDS Reconciliation Analysis and Correction Enabling System). The buyer does not need a TAN; the PAN is used. Payment is due within 30 days from the end of the month of deduction. On the example's Rs 1.5 crore, 1% is Rs 1,50,000. The TDS is an advance credit against the tax computed above, not the final liability.
The seller should confirm that the credit appears under the seller's PAN in Form 26AS and the Annual Information Statement (AIS). AIS also reflects property registration information reported by the registering authority (confirm), so the sale, its value and the TDS should reconcile with the capital gains schedule of the return.
Common mistakes
- Counting the holding period from the wrong date, or treating a gain as long-term when the 24 months have not run.
- Claiming indexation on a property acquired on or after 23 July 2024.
- Ignoring the stamp duty value and reporting only the agreement price.
- Missing the CGAS deadline. The deposit must be made before the return due date, not on the date the money is later needed.
- Assuming the whole sale price is exempt. Under Section 54/82 it is the gain that is exempt, capped by the new house cost; under Section 54F/86 it is the net consideration that must be reinvested.
- Claiming Section 54F while owning more than one other house.
- Treating TDS as the final tax, or not matching the TDS entry in Form 26AS/AIS before filing.
Reader context in Hyderabad
Resales in Kondapur, newer launches in Kokapet and high-value stock in the Financial District differ in acquisition date and price, which is exactly what decides whether the 12.5% route or the indexed route yields the lower tax and whether the Rs 10 crore reinvestment cap is relevant. These localities are mentioned only as context; no market statistics are asserted.
Frequently asked questions
1. Is indexation completely abolished for house property? For transfers on or after 23 July 2024 the base rule is 12.5% without indexation. Resident individuals and HUFs who acquired land or buildings before that date are protected through the comparison in Section 197 of the 2025 Act.
2. Can a gain on a residential flat be exempted if I buy only a plot? Section 54/82 requires a residential house. A plot alone does not qualify, although construction on it within three years may.
3. Must I open a Capital Gains Account if I intend to buy within two years? If the investment will not be made before the return due date, the unutilised gain must be deposited before that date to preserve the claim.
4. Can I buy two houses? Under Section 54/82 and where the gain does not exceed Rs 2 crore, the assessee may buy or construct two houses, but not again in the same or any other tax year.
5. Does 1% TDS apply to every sale? Not below the Rs 50 lakh threshold, and not to agricultural land. For the exact test, including stamp duty value, read the section text (confirm).
6. Do non-residents follow the same rules? No. Non-resident buyers deduct a different TDS, and the grandfathering benefit is limited to resident individuals and HUFs. This article does not cover them.
Official sources opened
- Income-tax Act, 2025 as amended by Finance Act, 2026 (section 2)
- Section 82, Section 85, Section 86 and Section 197 of the 2025 Act
- Various exemptions available from capital gains (1961 Act, as amended by Finance Act, 2026)
- Tax on long-term capital gains
- TDS on purchase of immovable property (Section 194-IA)
- Form 141 FAQs
Related reading on this site: tax rates on shares and tax harvesting, TDS rates and the Section 393 chart, will, gift deed and family settlement and common ITR filing mistakes.
Takeaway
The tax on a house sale is decided by four facts: dates (holding period and acquisition date), the 12.5% versus indexed comparison, how much is reinvested and when, and whether the TDS credit matches the return. Each should be documented before the registration, not after.
Arpan Bohra & Co., Chartered Accountants – https://www.arpanbohra.co.in/ – ab@arpanbohra.co.in
This article is for educational purposes and is not professional advice. Readers should consult a qualified professional on their own facts.
This article is for general information and is not professional advice. Law and rates change; please consult us before you act.