Long-Term vs Short-Term Capital Gains on Property
When you sell property, the tax depends on how long you held it. Hold it long enough and you pay a lower long-term rate. Sell too soon and you pay tax at your normal slab rate, which is often higher. This guide explains long-term and short-term capital gains on property, the latest rates, and simple ways to plan the sale.
Quick summary
- Property held over 24 months: long-term capital gain (LTCG).
- Property held 24 months or less: short-term capital gain (STCG).
- STCG is taxed at your income slab rate, up to 30% plus surcharge and cess.
- LTCG is taxed at 12.5% without indexation. Older property (bought before 23 July 2024) can choose 20% with indexation, for residents.
- Exemptions like Section 54, 54F and 54EC apply only to long-term gains.
The holding period decides everything
The first thing to check is how long you owned the property. Count from the date of purchase to the date of sale.
| Holding period | Type of gain |
|---|---|
| More than 24 months | Long-term (LTCG) |
| 24 months or less | Short-term (STCG) |
For inherited property, you count from the date the original owner bought it, not the date you inherited it. This usually makes it long-term.
How short-term gains are taxed
Short-term gains have no special rate. They are added to your total income and taxed at your slab. If you are in the 30% bracket, the gain is taxed at 30% plus surcharge and cess. There is no indexation and no Section 54 exemption for short-term gains. This is why selling within 2 years is usually expensive.
Short-term example
You buy a flat for Rs 60 lakh and sell it 18 months later for Rs 75 lakh. The Rs 15 lakh gain is short-term. If you are in the 30% slab, tax is about Rs 4.5 lakh plus cess.
How long-term gains are taxed
Long-term gains on property now follow the rules set from 23 July 2024.
- Standard method: 12.5% on the gain, without indexation.
- Grandfathered choice: if you are a resident individual or HUF and bought the property before 23 July 2024, you can instead use 20% with indexation, and pick whichever gives lower tax.
To understand the inflation adjustment, read our guide on the Cost Inflation Index and indexation.
Long-term example
You bought a house in 2016 for Rs 50 lakh and sell in 2026 for Rs 1.2 crore. Under the flat method, the gain is Rs 70 lakh, taxed at 12.5% = about Rs 8.75 lakh. With indexation, the indexed cost is around Rs 74 lakh, so the gain is Rs 46 lakh, taxed at 20% = about Rs 9.2 lakh. Here the 12.5% method is slightly better. You should always compute both.
LTCG vs STCG side by side
| Point | Short-term | Long-term |
|---|---|---|
| Holding | Up to 24 months | Over 24 months |
| Rate | Slab rate, up to 30% | 12.5% (or 20% with indexation for old property) |
| Indexation | Not allowed | Allowed only in the 20% option |
| Exemptions (54, 54F, 54EC) | Not available | Available |
Ways to reduce the tax
- Hold for more than 24 months to move from slab-rate short-term to the lower long-term rate.
- Reinvest a long-term gain in a house under Section 54 or 54F. See Section 54 vs 54F.
- Invest up to Rs 50 lakh in 54EC bonds if you do not want to buy a house.
- Set off capital losses against gains within the rules.
TDS and reporting
When you sell, the buyer deducts 1% TDS if the sale value is Rs 50 lakh or more, under Section 194-IA. This is not your final tax. You compute the actual gain, adjust the TDS, and pay or claim the balance in your return. See TDS on property purchase for details.
Frequently asked questions
How long must I hold property for long-term gains?
More than 24 months. Sell within 24 months and the gain is short-term, taxed at your slab.
What is the long-term rate on property now?
12.5% without indexation. Resident individuals and HUFs who bought before 23 July 2024 can instead use 20% with indexation, whichever is lower.
How is short-term gain on property taxed?
At your income slab rate, up to 30% plus surcharge and cess. No indexation or exemptions apply.
Can I save tax on a short-term gain?
The special exemptions do not apply to short-term gains. The main option is to hold longer so the gain becomes long-term.
Does the holding period change for inherited property?
You count from when the original owner bought it. This usually makes an inherited sale long-term.
Is indexation still allowed?
Only inside the 20% option, and only for residents who bought property before 23 July 2024.
What TDS applies when I sell?
The buyer deducts 1% if the value is Rs 50 lakh or more. For NRI sellers, TDS is much higher and based on the gain.
Can I set off a property loss against gains?
A long-term loss can be set off against long-term gains. A short-term loss can be set off against both short and long-term gains, within the rules.
Do these rates change with the new tax regime?
Capital gains rates are separate from the slab regime choice. LTCG stays 12.5% and exemptions still apply under both regimes.
When do I pay the capital gains tax?
Through advance tax during the year and the balance when you file your return. Late payment attracts interest.
The simplest rule is to hold property beyond 24 months before selling. That shifts you from a high slab rate to the lower long-term rate, and opens up reinvestment options. When you reinvest, browse current projects that match your budget.
