When you sell a plot or a flat for more than it cost you, the profit is taxable as a capital gain. It is the tax sellers most often underestimate, and planning for it before you sign can save a large sum legally. This guide explains, in plain terms, how capital gains tax works on a non-agricultural property such as a YEIDA plot or a flat: how long you must hold it, the rate, how the gain is worked out, the exemptions that can wipe it out, and the TDS the buyer must deduct. Agricultural land is taxed differently, and that is covered in our guide to tax on selling agricultural land. This is general information, not tax advice; use a chartered accountant for your sale.
Key facts at a glance
- Hold for more than 24 months and the gain on land or a building is long-term; sell within 24 months and it is short-term, taxed at your slab rate.
- Long-term gains are taxed at 12.5% without indexation. For property bought before 23 July 2024, a resident may instead choose 20% with indexation, whichever gives the lower tax.
- Reinvest to save tax: Section 54 (a house into another house), Section 54F (a plot into a house) and Section 54EC (gains into bonds) can exempt the gain, within limits.
- The buyer deducts 1% TDS on a sale of ₹50 lakh or more, under Section 194-IA, and deposits it against your PAN.
- There is no ₹1.25 lakh exemption on property gains. That exemption is for listed shares, not land or flats.
Short-term or long-term
For immovable property, the dividing line is 24 months. If you sell within 24 months of buying, the gain is a short-term capital gain and is added to your income and taxed at your normal slab rate. If you hold for more than 24 months, it is a long-term capital gain, taxed at the special rate below. If you inherited the property or received it as a gift, your holding period includes the time the previous owner held it, and your cost is their cost.
How the gain is worked out
The capital gain is the sale value minus what the property cost you and what it cost you to sell:
- Sale value. The sale consideration, or the stamp duty (circle-rate) value if that is higher, is taken as the sale value.
- Less cost of acquisition. What you paid for the plot or flat, including the premium, lease rent, location charges and stamp duty and registration you paid on buying, which is why keeping those records matters. For a long-term gain taxed at 20%, this cost is indexed for inflation; at the 12.5% rate it is not.
- Less cost of improvement (construction or additions) and the expenses of transfer (brokerage, legal fees).
The upfront costs that make up your acquisition cost are set out in our guide to the full cost of a YEIDA plot, and the duty on buying in our guide to stamp duty and registration.
The rate on a long-term gain
Since 23 July 2024, long-term capital gains on property are taxed at 12.5% without indexation. For a property acquired before 23 July 2024, a resident individual or HUF may choose between that 12.5% without indexation and the older 20% with indexation, and pay whichever is lower. For property bought on or after that date, only the 12.5% rate applies. A short-term gain is simply added to your income at your slab rate. Surcharge and cess apply on top.
Exemptions that can wipe out the gain
You can reduce or remove the long-term tax by reinvesting, under three main provisions. These apply to individuals and HUFs:
- Section 54: a house into a house. If you sell a long-term residential house and reinvest the gain in one residential house in India, bought within one year before or two years after the sale, or built within three years, the gain is exempt. The exemption is capped at ₹10 crore.
- Section 54F: a plot (or other asset) into a house. If you sell a long-term asset that is not a residential house, such as a plot, and invest the net sale consideration in one residential house (same time limits), the gain is exempt in proportion to the amount reinvested. You must not own more than one other house on the date of sale, and the cap is ₹10 crore.
- Section 54EC: gains into bonds. If you invest the long-term gain from land or a building in specified NHAI or REC bonds within six months of the sale, up to ₹50 lakh, the gain is exempt. The bonds have a five-year lock-in.
If you have not reinvested by the date you file your return, you can park the amount in a Capital Gains Account Scheme account to keep the exemption alive, and use it within the time limit. Get the conditions and timing right, because a missed deadline loses the exemption.
TDS: what the buyer deducts
Under Section 194-IA, when a property sells for ₹50 lakh or more, the buyer must deduct 1% TDS on the consideration or the stamp duty value, whichever is higher, deposit it within 30 days using Form 26QB, and give you Form 16B. It is credited against your PAN and adjusted in your return, so give the buyer your correct PAN; without it the rate is 20%. Agricultural land is outside 194-IA. If the seller is an NRI, TDS is deducted under a different provision (Section 195) at higher rates, so an NRI seller should plan for that and a lower-deduction certificate. For how NRIs buy and sell here, see our guide to NRIs buying on the Yamuna Expressway.
A note on the law and the year
The figures above are the capital-gains rules for a resident selling a non-agricultural property. The Income-tax Act, 2025 comes into force from 1 April 2026 and renumbers the capital-gains provisions, though it carries the substance forward; the familiar Section 54, 54F and 54EC are referred to here because they are what most people and advisers still use. Rates, limits and section numbers change with each Budget, so confirm the current position, and your own liability, with a chartered accountant before you sell.
Common questions
More than 24 months. Sell within 24 months and the gain is short-term, added to your income at your slab rate; hold longer and it is long-term, taxed at the special rate.
Long-term gains are taxed at 12.5% without indexation. For property bought before 23 July 2024, a resident may instead choose 20% with indexation, whichever is lower. Short-term gains are taxed at your slab rate.
By reinvesting: Section 54F lets you invest the net sale consideration from a plot in a residential house, Section 54 covers selling a house and buying another, and Section 54EC covers investing the gain in NHAI or REC bonds up to ₹50 lakh. Each has conditions and deadlines.
Yes, 1% under Section 194-IA if the price is ₹50 lakh or more, on the consideration or stamp duty value, whichever is higher, credited against your PAN. NRI sellers face TDS under Section 195 at higher rates.
No. That exemption is for long-term gains on listed shares and equity funds, not on land or flats. Property gains are exempt only through reinvestment under Sections 54, 54F and 54EC.
Please verify before you commit. Tax rates, limits and section numbers change, the Income-tax Act 2025 renumbers these provisions from 1 April 2026, and your liability depends on your own facts. This is general information, not tax advice. Consult a chartered accountant before selling or claiming an exemption.
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