Budget 2024 rewrote the arithmetic of selling property in India. The long-term capital gains rate on land and buildings fell from 20% to 12.5%, but the indexation benefit that used to inflate your purchase cost was withdrawn. Because that could raise tax for long-held property, a grandfathering choice was kept for resident individuals and HUFs who acquired land or buildings before 23 July 2024: compute the tax both ways and pay the lower.

That choice is still live in 2026, now inside the Income-tax Act, 2025. This guide shows how to run both computations with the newly notified cost inflation index, where the reinvestment exemptions fit, and what is different for NRIs. It is not tax advice; a chartered accountant should check your actual numbers.

The rules, as they stand on 3 October 2026

  • Long-term means held for more than 24 months for immovable property (Business Today; TaxBuddy).
  • Default long-term rate: 12.5% without indexation, plus applicable surcharge and 4% cess.
  • Grandfathering option: for land or buildings acquired before 23 July 2024, resident individuals and HUFs may instead pay 20% with indexation if that is lower. Business Today's July 2026 report on the CII notification describes this as the remaining group able to claim indexation.
  • NRIs: the indexation option is not available to non-residents, who compute long-term gains at 12.5% without indexation (per explainers including Patron Accounting and Retirewise).
  • Cost inflation index: CBDT notified 384 for FY 2026-27 on 15 July 2026, up from 376 for FY 2025-26 (Business Today; Angel One). Earlier years include 254 for FY 2015-16 and 117 for FY 2005-06 (Patron Accounting's CII table).
  • Short-term gains (held 24 months or less) are added to income and taxed at slab rates.

Worked example 1: bought in FY 2015-16, sold in October 2026

A resident couple's Bengaluru apartment, bought for ₹1.00 crore in FY 2015-16 (CII 254), is sold for ₹2.40 crore in October 2026 (FY 2026-27, CII 384). For simplicity we ignore improvement costs and selling expenses, which reduce the gain under both options.

  • Option A, 12.5% without indexation: gain ₹1.40 crore; tax ₹17.50 lakh (about ₹18.20 lakh with 4% cess).
  • Option B, 20% with indexation: indexed cost = ₹1.00 crore × 384 ÷ 254 = about ₹1.51 crore; gain about ₹88.8 lakh; tax about ₹17.76 lakh (about ₹18.47 lakh with cess).
  • Lower tax: Option A, by about ₹26,000. For a decade-old purchase in a market that roughly doubled, the two methods land close together.

Worked example 2: bought in FY 2005-06, sold in October 2026

Now a Gurgaon floor bought for ₹40 lakh in FY 2005-06 (CII 117), also sold for ₹2.40 crore in October 2026.

  • Option A, 12.5% without indexation: gain ₹2.00 crore; tax ₹25.00 lakh (₹26.00 lakh with cess).
  • Option B, 20% with indexation: indexed cost = ₹40 lakh × 384 ÷ 117 = about ₹1.31 crore; gain about ₹1.09 crore; tax about ₹21.74 lakh (about ₹22.61 lakh with cess).
  • Lower tax: Option B, by roughly ₹3.3 lakh. The older the purchase, and the more general inflation outpaced the property's own appreciation, the more indexation tends to win.

Reinvesting in a home: section 54, now section 82

The residential-house exemption, section 54 under the 1961 Act, is section 82 of the Income-tax Act, 2025, per the department's section listing and analyses by EbizFiling and EZTax. The substance carried over:

  • Who: individuals and HUFs selling a long-term residential house.
  • What: invest the capital gain in one residential house in India, purchased within one year before or two years after the sale, or constructed within three years.
  • Two houses, once: if the gain does not exceed ₹2 crore, you may, once in a lifetime, buy or build two houses instead of one.
  • ₹10 crore cap: any cost of the new house above ₹10 crore is ignored for the exemption, a limit introduced from 1 April 2023 (Budget 2023; Outlook Business).
  • If you have not bought by your return due date, deposit the unutilised gain in the Capital Gains Account Scheme before that date, then use it within the time limit, or it becomes taxable.

Worked example 3: the exemption changes which option wins

Take the seller in example 2 and assume they buy a ₹1.20 crore apartment within two years.

  • Under Option A, the gain is ₹2.00 crore; ₹1.20 crore is exempt; ₹80 lakh remains taxable at 12.5% = ₹10 lakh plus cess.
  • Under Option B, the indexed gain is about ₹1.09 crore, which is fully covered by the ₹1.20 crore reinvestment; tax is nil.
  • Lesson: compute each option after exemptions, not before. The option that looks marginally better on the raw gain can be decisively worse once you reinvest.

Capital gains bonds: the 54EC route

If you do not want another home, the bond exemption (section 54EC under the 1961 Act, carried into the 2025 Act under a new number) lets you invest long-term gains from land or buildings in specified bonds within six months of the sale. Guides from TaxBuddy and Disytax describe the essentials: a ₹50 lakh ceiling, a five-year lock-in, issuers such as REC, PFC, IRFC and NHAI, and interest that is fully taxable. Breaking the lock-in early reverses the exemption. For a large gain, a combination of a new home and bonds is common.

If you are an NRI seller

  • No indexation option: compute at 12.5% on the unindexed gain.
  • TDS will be withheld by the buyer at non-resident rates, usually on the full price, unless you obtain a lower-deduction certificate (Form 128 under section 395 of the 2025 Act, formerly Form 13 under section 197).
  • The residential-house and bond exemptions are not restricted to residents, so plan the reinvestment before you apply for the certificate; it can reduce the rate the assessing officer allows.
  • Repatriation of sale proceeds has its own FEMA limits and documentation; keep the CA certificate and tax paid records together.

Practical checklist before you sign a sale

  • Assemble the purchase deed, payment proofs and improvement bills: these are your cost base.
  • Confirm the acquisition date and the financial year for CII; for under-construction purchases, take advice on which date applies.
  • Run Option A and Option B after any planned exemption.
  • If reinvesting, check the timeline and the ₹10 crore cap before you sign the new purchase.
  • Pay advance tax on the gain in the quarter of sale to avoid interest.
  • Keep the buyer's TDS certificate; you claim it against the final liability.

Mistakes we see most often

  • Using the wrong year's index: the sale year's CII applies, and FY 2026-27 is 384. Using 376 overstates the gain under the indexation option.
  • Forgetting improvement costs: documented capital improvements, such as a structural renovation, add to cost under both options. Repairs and maintenance do not.
  • Ignoring selling costs: brokerage and legal fees directly connected with the sale reduce the gain.
  • Comparing options before exemptions: as example 3 shows, reinvestment can flip the answer.
  • Missing the Capital Gains Account Scheme deadline: if the new home is not bought by the return due date, the unutilised gain must already be in the scheme by then.
  • Assuming NRIs get the same choice: they do not; plan around 12.5% and the exemptions instead.

Not tax advice

The calculations above are simplified illustrations using published rates and indices. They ignore surcharge, selling costs and individual circumstances. Section numbers follow the Income-tax Act, 2025 where a verified mapping was available. Please have a chartered accountant confirm your computation before filing.