Capital Gains Tax on Sale of Property: A Bangalore Seller's Guide

If you are selling a flat in Bangalore, capital gains tax on sale of property is often the biggest cost after the loan payoff. How much you pay depends on how long you held the flat, when you bought it, and whether you reinvest the money. The rules changed in July 2024, and India's new Income-tax Act, 2025 came into force on 1 April 2026, so many older articles online are now out of date.

This guide explains the rules as they stand for sales in FY 2026-27, with a worked example. Tax law changes often, so treat this as a starting point and confirm your own numbers with a chartered accountant before you sign.

A quick note on the new Income-tax Act, 2025

From 1 April 2026, the Income-tax Act, 1961 has been replaced by the Income-tax Act, 2025. The new law largely keeps the capital gains rules but renumbers the sections and uses the term "tax year" instead of "previous year" and "assessment year".

Most people, and most bank and CA websites, still use the old section numbers, so this guide does too, with the new ones alongside:

• Section 54 (reinvesting in a house) is now Section 82.
• Section 54EC (specified bonds) is now Section 85.
• Section 54F (selling other assets and buying a house) is now Section 86.
• Section 194-IA (1% TDS on property purchase) is now Section 393(1), and buyers file Form 141 instead of Form 26QB for payments made from 1 April 2026.

Short-term vs long-term: the 24-month rule

For a flat, house or plot, the holding period decides the type of gain.

• Short-term capital gain (STCG): you sell within 24 months of buying. The gain is added to your income and taxed at your slab rate.
• Long-term capital gain (LTCG): you sell after holding it for more than 24 months. A special rate applies, and you can claim exemptions.

For an under-construction flat, the holding period is generally counted from the date of allotment or agreement, though this can depend on the facts. If you are close to the 24-month line, waiting a few weeks can make a large difference.

LTCG rates after 23 July 2024

The Union Budget of July 2024 cut the LTCG rate on property from 20% to 12.5% but removed indexation. After pushback, the government added a choice for older purchases.

Property bought on or after 23 July 2024

Tax is a flat 12.5% on the gain, without indexation. Gain is simply sale price minus purchase cost, cost of improvements and selling expenses.

Property bought before 23 July 2024

If you are a resident individual or HUF, you can calculate tax both ways and pay the lower amount:

• 12.5% on the gain without indexation, or
• 20% on the gain with indexation.

Indexation raises your purchase cost to account for inflation, using the Cost Inflation Index (CII) notified each year. The CII for FY 2026-27 is 384. Indexation usually helps when the property has grown slowly, and 12.5% usually wins when prices have risen sharply. Non-residents do not get this choice and pay 12.5% without indexation.

Cess of 4% applies on top, and surcharge applies at higher income levels.

Capital gains tax on sale of property: a worked example

Say Priya bought a 2BHK in Whitefield in FY 2016-17 for ₹60 lakh, including stamp duty and registration. She sells it in FY 2026-27 for ₹1.2 crore and pays ₹1 lakh in selling costs.

Option 1: 12.5% without indexation

• Gain: ₹1.2 crore minus ₹60 lakh minus ₹1 lakh = ₹59 lakh.
• Tax at 12.5%: about ₹7.38 lakh, before cess.

Option 2: 20% with indexation

• CII for FY 2016-17 is 264 and for FY 2026-27 is 384.
• Indexed cost: ₹60 lakh × 384 ÷ 264 = about ₹87.27 lakh.
• Gain: ₹1.2 crore minus ₹87.27 lakh minus ₹1 lakh = about ₹31.73 lakh.
• Tax at 20%: about ₹6.35 lakh, before cess.

Priya saves roughly ₹1 lakh by choosing indexation. If she reinvests the gain under Section 54 or 54EC (below), she may owe no tax at all. Surcharge is ignored here for simplicity.

Costs you can deduct

Many sellers overpay because they forget what they can subtract from the sale price:

• Stamp duty, registration fee and legal charges paid when you bought.
• Documented cost of improvements, such as a major renovation or added room. Routine repairs do not count.
• Brokerage and legal fees paid on the sale.

Keep invoices and bank proof. Without records, these claims are hard to defend.

Section 54: buy another home and save tax

Under Section 54 (Section 82 in the new Act), a resident or non-resident individual or HUF selling a residential house held long term can claim exemption if they invest the capital gain in another residential house in India.

• Buy the new house within 1 year before or 2 years after the sale, or construct one within 3 years.
• The exemption is the lower of the capital gain and the amount invested in the new house.
• The exemption is capped at ₹10 crore. Investment above that is ignored.
• Once in a lifetime, if the gain is ₹2 crore or less, you can split it across two houses.
• If you sell the new house within 3 years, the exemption is reversed.

Only the gain needs to be reinvested, not the full sale price. In Priya's case, investing ₹31.73 lakh (or ₹59 lakh, depending on the option she uses) in a new flat would cover it.

Capital Gains Account Scheme

If you have not bought the new home by the due date for filing your income tax return, deposit the unused amount in a Capital Gains Account Scheme account at an authorised bank branch. You then withdraw it to pay for the house within the allowed period. Any amount not used in time becomes taxable.

Section 54EC: bonds up to ₹50 lakh

If you do not want another house, Section 54EC (Section 85 in the new Act) lets you invest the LTCG from land or building in specified bonds, such as those issued by NHAI, REC, PFC or IRFC.

• Invest within 6 months of the sale.
• Maximum ₹50 lakh across the year of sale and the following year.
• The bonds have a 5-year lock-in and pay modest taxable interest.

You can combine Section 54 and 54EC. For example, put part of the gain into a new flat and part into bonds.

TDS when the buyer pays you

The buyer, not you, is responsible for deducting tax at source, but it affects how much reaches your account.

• Resident sellers: if the sale value is ₹50 lakh or more, the buyer deducts 1% TDS on the full amount and deposits it with Form 141 (Form 26QB for older payments). You claim it as credit when you file your return.
• NRI sellers: Section 194-IA does not apply. The buyer deducts TDS under the non-resident rules (Section 195, renumbered in the new Act), at 12.5% plus surcharge and cess for long-term gains on the full sale price, with no ₹50 lakh threshold. NRIs can apply to the tax department for a lower deduction certificate so tax is cut only on the actual gain.

Give the buyer your PAN. Without it, TDS can be deducted at a much higher rate.

Capital gains planning works best before the sale agreement, not after. If you are selling and buying in Bangalore, Skyros Estates can help you time both deals and line up the paperwork, while your CA handles the tax filing.