Property Capital Gains AY 2026-27: 12.5% vs 20% Indexation Choice, CII 376, Section 54 Timing
Whether you get the 20% indexed LTCG rate or must use 12.5% flat depends entirely on when you bought the property, relative to July 23, 2024. This article walks through the two tracks, CII 376 for FY 2025-26, NRI TDS rules, and the Section 54/54EC deadlines that apply to AY 2026-27 filings.
CA Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Legal basis: Section 112 of the Income Tax Act, 1961 (capital gains on transfer of long-term capital assets) — Effective: July 23, 2024 (Finance Act 2024 amendment). Source: CBDT Notification No. 70/2025 dated July 1, 2025. Last reviewed by CA Harun Raaj: September 2026.
Which Track Applies to Your Property Sale
If you sold a residential property in FY 2025-26 (April 2025 to March 2026), the capital gains computation for AY 2026-27 turns on one date: when you acquired the property, relative to July 23, 2024 — the date the Finance Act 2024 changed the long-term capital gains rate under Section 112.
This article works within the framework of the Income Tax Act, 1961, which governs AY 2026-27 (FY 2025-26). From Tax Year 2026-27 onward, the Income Tax Act 2025 applies with renumbered sections.
Key point: Property acquired before July 23, 2024 and sold in FY 2025-26 gets a choice between 20% with indexation and 12.5% without indexation, whichever produces lower tax; property acquired on or after that date does not.
Track A: Acquired Before July 23, 2024
If you bought the property before July 23, 2024 and sold it in FY 2025-26, Section 112 lets you compute long-term capital gains (LTCG) both ways and pick whichever is lower:
- Option 1 — 20% tax with indexation, using the Cost Inflation Index (CII).
- Option 2 — 12.5% tax without indexation.
There is no shortcut here — the computation has to be run under both options before you know which one wins.
Track B: Acquired On or After July 23, 2024
If the property was acquired on or after July 23, 2024 and sold in FY 2025-26, there is no choice. LTCG is taxed at 12.5% without indexation, full stop. The indexed cost computation is not available for this track.
NRIs Selling Property in India
NRIs do not get the dual-option choice, regardless of when the property was acquired. LTCG on property sold by an NRI is taxed at 12.5% without indexation. The buyer deducts TDS under Section 195 on the LTCG amount at the applicable rate — not under Section 194-IA, which applies only to resident sellers.
The Cost Inflation Index for FY 2025-26 Is 376
For Track A, Option 1 computations, the relevant CII figures are:
Source: CBDT Notification No. 70/2025 dated July 1, 2025.
Indexed cost of acquisition = Original cost × (CII of sale year ÷ CII of acquisition year). Take a property bought in FY 2006-07 (CII 122) for ₹50 lakh and sold in FY 2025-26 for ₹2 crore:
- Indexed cost = ₹50 lakh × (376/122) ≈ ₹154.1 lakh.
- Indexed LTCG = ₹2 crore − ₹154.1 lakh ≈ ₹1.459 crore. Tax at 20% ≈ ₹29.18 lakh.
- Unindexed LTCG = ₹2 crore − ₹50 lakh = ₹1.50 crore. Tax at 12.5% = ₹18.75 lakh.
In this example, Option 2 (12.5% without indexation) comes out lower — the shorter the holding period, the less indexation has to offer, and the more likely the 12.5% flat rate wins. Indexation tends to help most on properties held since the early 2000s or before, where the CII multiple (376/100 = 3.76x here) is large enough to shrink the taxable gain significantly.
Holding Period: What Counts as Long-Term
A residential house property qualifies as a Long-Term Capital Asset only if held for more than 24 months, under Section 2(42A). Held for 24 months or less, the gain is short-term and taxed at slab rates — with no indexation benefit available at all.
Section 54 Exemption: Two Deadlines That Matter for AY 2026-27
If you sold a residential house in FY 2025-26 and intend to claim exemption under Section 54 by reinvesting in a new residential house, two deadlines drive whether the exemption survives scrutiny.
CGAS deposit deadline. If you have not purchased the new house before the ITR due date (October 31, 2026 for audit cases; August 31, 2026 for non-audit ITR-3 filers), the unutilised LTCG must go into a Capital Gains Account Scheme (CGAS) deposit with a scheduled bank before that due date. Miss it, and the exemption cannot be claimed in that year's return.
Purchase or construction window.
- Purchase: one year before, or two years after, the date of transfer.
- Construction: three years after the date of transfer.
A sale in April 2025 opens a purchase window running from April 2024 to April 2027; CGAS funds can be drawn down within that window.
₹10 crore cap. Where the cost of the new house exceeds ₹10 crore, Section 54 exemption is computed as if the cost were capped at ₹10 crore — a Finance Act 2023 change, effective AY 2024-25 onward.
Section 54EC Bonds: A Narrow Window for Q1 FY 2026-27 Sellers
Sold property between April and June 2026 (Q1 FY 2026-27) and planning to claim Section 54EC exemption through NHAI, REC, PFC, IRFC, or HUDCO bonds? The investment must be made within six months of the date of transfer — meaning that window closes between October and December 2026. Maximum investment is ₹50 lakh per financial year, across all Section 54EC bonds combined. Confirm current bond availability and coupon rate directly with the issuer before investing.
I'm CA Harun Raaj, Visakhapatnam.
If you sold property in FY 2025-26 and aren't sure which rate track or Section 54 deadline applies to you, get in touch before you file.
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See Also
Frequently Asked Questions
Do I get to choose between 20% and 12.5% LTCG tax if I sold property in FY 2025-26?
Only if you acquired the property before July 23, 2024. Under Section 112, you can then compute LTCG both at 20% with indexation and at 12.5% without indexation, and pay whichever is lower.
What if I acquired the property on or after July 23, 2024?
There is no choice. Under Section 112 as amended by the Finance Act 2024, LTCG on such property sold in FY 2025-26 is taxed at 12.5% without indexation only.
How is TDS deducted when an NRI sells property in India?
The buyer deducts TDS under Section 195 on the LTCG amount at the applicable rate, not under Section 194-IA, which applies only to resident sellers. NRIs are taxed at 12.5% without indexation regardless of acquisition date.
What is the Cost Inflation Index for FY 2025-26?
The CII for FY 2025-26 is 376, notified by CBDT Notification No. 70/2025 dated July 1, 2025. It is used to compute indexed cost of acquisition for properties eligible for the 20% with-indexation option.
How long must I hold a house to qualify for long-term capital gains treatment?
A residential house property must be held for more than 24 months to qualify as a Long-Term Capital Asset under Section 2(42A). If held for 24 months or less, the gain is short-term and taxed at slab rates with no indexation benefit.
What happens if I don't buy a new house before my ITR due date under Section 54?
The unutilised LTCG must be deposited in a Capital Gains Account Scheme (CGAS) account with a scheduled bank before the ITR due date (October 31, 2026 for audit cases; August 31, 2026 for non-audit ITR-3 filers). Missing this deadline means the exemption cannot be claimed for that year.
Is there a cap on Section 54 exemption if my new house costs more than ₹10 crore?
Yes. Under the Finance Act 2023 amendment, effective AY 2024-25 onward, if the cost of the new house exceeds ₹10 crore, the Section 54 exemption is computed as if the cost were capped at ₹10 crore.
How long do I have to invest in Section 54EC bonds after selling property?
You have six months from the date of transfer to invest in NHAI, REC, PFC, IRFC, or HUDCO bonds under Section 54EC, subject to a maximum of ₹50 lakh per financial year across all such bonds.
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