Capital Gains Tax India 2025: Calculation, Rates, And Exemption On Property

Capital gains are the profits earned from transferring a capital asset, like property, including both land and building (held for personal or business purposes), shares, mutual funds, or certain insurance policies. The capital gains tax is the tax levied on this profit. The taxable profit equals the difference between the sale consideration and the purchase cost, after applicable deductions.

Capital gains are recognised in the year of transfer. They are taxed either as short-term or long-term as per the holding period and the asset class, which is explained in the following section.

The capital gains tax can either be short-term or long-term. It depends on the duration the asset was held before its transfer. This classification of capital assets is defined as follows:

Let’s compare short-term and long-term capital gains.

Any type of property is considered a capital asset under the Income Tax Act. It covers residential as well as commercial real estate, including land, houses, apartments, and buildings. The profit earned when such property is transferred is treated as capital gains. The nature of this gain, however, depends on its holding period.

• If the property is sold within 24 months of purchase, the profit is short-term.
  This income from capital gains will be added to the taxpayer’s total income and taxed as per the applicable income tax slab.
• If the property is sold after 24 months, the profit is long-term.
  This income from capital gains will be charged as follows:
  • For property acquired before 23 July 2024: 20% with indexation benefit (i.e., purchase cost adjusted for inflation)
  • For property acquired on or after 23 July 2024: 12.5% without indexation

Note: After the government’s revised regime for the uniform LTCG rate without indexation, for any properties acquired before that date, taxpayers can choose to compute capital gains tax using either of the following methods:

• 20% with indexation, or
• 12.5% without indexation

Before we move further, let’s understand how capital gains on property are actually calculated with the help of an example.

As seen in the above example, capital gains are computed after deducting certain costs and, in the case of long-term assets, applying indexation. The net amount is treated as taxable income under the head “Capital Gains” in your income tax return (ITR).

Let’s study these components:

• Full value of consideration: Sale price declared (or fair market value in certain transfers).
• Allowable deductions for transfer expenses: Brokerage, stamp duty, and legal fees directly related to the transfer. For example, other charges can include the cost of stamp paper.
• Cost of acquisition and improvement: Original purchase price and capital improvements (not routine repairs).
• Indexation (if applicable): Adjusts the acquisition and improvement cost for inflation using the Cost Inflation Index (CII). The indexed amounts reduce the taxable gain. The following section will discuss this in further detail.

Inflation gradually reduces the real value of money over time. Without adjusting for it, taxpayers would end up paying capital gains tax on not just the actual profit but also on the inflationary rise in property prices. To address this, the Income Tax Act allows indexation, which increases the purchase cost of the asset in line with inflation. This reduces the income from capital gains and, therefore, the tax liability.

• Indexed cost of acquisition
  Cost of acquisition × (CII of year of transfer) / (CII of year of acquisition)
• Indexed cost of improvement
  Cost of improvement × (CII of year of transfer) / (CII of year of improvement)

In the previous example, we saw how Sachin sold his property. Without indexation, the capital gains are ₹43 lakh. However, by applying indexation, the original cost is adjusted upwards using the ratio of CII values. It brought his taxable gain to approximately ₹28 lakh.

Some of the exemption provisions used for property include:

As seen in the earlier examples, taxpayers can reduce or avoid capital gains tax if they reinvest such gains as specified in Section 54/54EC/54F. When conditions like reinvestment timelines and investment amount limits are met, these provisions permit structured exemptions.

Resident taxpayers can also adjust their capital gains against the remaining basic exemption limit after first adjusting other sources of income. Non-resident individuals and non-resident HUFs, however, cannot use the exemption limit to offset gains.

For FY 2025–26, the basic exemption limit that can be set off against gains is as follows:

• Resident individuals below 60 years of age - ₹2.5 lakh under the old tax regime and ₹3 lakh in the default tax regime
• Senior citizens (60–80 years of age) – ₹3 lakh
• Super senior citizens (80+ years of age) - ₹5 lakh

To report income from capital gains in your ITR, follow the steps below:

While real estate is a major source of income from capital gains, other assets are also taxable under the section.

NRIs are subject to the same capital gains tax rates as resident taxpayers in India. However, an important difference is that when an NRI sells a property in India, the buyer is required to deduct TDS before making the payment. If the correct TDS has already been deducted, the NRI is not obligated to file an ITR unless they wish to claim a refund or report additional income.

However, under the new provisions introduced in recent budgets, NRIs earning ₹15 lakh or more annually in India will be classified as residents for tax purposes. It will influence tax liability.