Capital Gains Under the Income-tax Act 2025: Property, 12.5% LTCG, the Indexation Option

Capital gains tax in India was rewritten in July 2024 and renumbered in April 2026 — two changes that get muddled together constantly. The rates did not change with the new Act; the section numbers did. Here is the full picture for 2026: holding periods, the 12.5% rate, the one surviving indexation option, and where everything now lives in the Income-tax Act 2025.

Two changes, not one

First, the Finance (No. 2) Act 2024 reset the rates from 23 July 2024: a uniform 12.5% long-term rate without indexation, simplified holding periods, and a higher 20% short-term rate for listed equity. Second, the Income-tax Act 2025, in force from 1 April 2026, carried that regime over unchanged — but renumbered it. Capital gains now occupy sections 67 to 91, with the computation rules in section 72 (earlier 48). If your tax feels different this year, it is the 2024 change you are feeling, not the new Act.

Holding periods: 12 or 24 months

The old three-tier mess is gone. There are now two holding periods:

• More than 12 months — listed securities and equity mutual funds become long-term.
• More than 24 months — everything else, including property and unlisted shares, becomes long-term.

Hold an asset for less, and the gain is short-term — taxed quite differently, as below.

The rates in 2026

Long-term capital gains: 12.5%, no indexation

• Property: 12.5% on the gain, computed without indexation.
• Listed equity and equity mutual funds (STT-paid): 12.5% on gains above the ₹1.25 lakh per year exemption.
• Unlisted shares: 12.5%, no indexation.

One rate across asset classes is the design intent — simpler, and harder to game by reclassifying assets.

Short-term capital gains

• Listed equity (STT-paid): 20% (the old section 111A rate, raised in July 2024).
• Property, unlisted shares and other assets: taxed at your slab or applicable rates — up to 30% for individuals in the top bracket.

For property, the 24-month line is therefore worth real money: a sale at month 23 can be taxed at 30%, the same sale at month 25 at 12.5%.

The indexation option — who still gets it

Losing indexation stung owners of older property, where inflation makes up much of the paper gain. Parliament responded with a grandfathering option, and it survives into the 2025 Act:

• It applies only to land or buildings acquired before 23 July 2024.
• It is available only to resident individuals and HUFs — not to NRIs, companies, firms or LLPs.
• The seller pays the lower of: 12.5% on the un-indexed gain, or 20% on the indexed gain.

In practice: for property bought long ago at low cost, indexation often wins; for property bought recently or in fast-appreciating locations, the flat 12.5% usually wins. It is a computation, not a judgement call — run both numbers before the sale, not after.

A simple illustration of why both numbers matter

Take a flat bought for ₹40 lakh and sold for ₹1 crore. Without indexation, the gain is ₹60 lakh and the tax at 12.5% is ₹7.5 lakh. With indexation, suppose the indexed cost works out to ₹75 lakh — plausible for a long holding period — leaving an indexed gain of ₹25 lakh and tax at 20% of ₹5 lakh. Here the old method saves ₹2.5 lakh. Now compress the holding period so the indexed cost is only ₹48 lakh: the indexed gain is ₹52 lakh, 20% is ₹10.4 lakh, and the flat 12.5% (₹7.5 lakh) wins instead. The crossover depends entirely on how much inflation sits inside your gain. (Illustrative arithmetic only — actual index values and your specific facts decide the real answer.)

The exemptions, renumbered

The reinvestment exemptions every property seller asks about carry over with new section numbers:

• Section 82 (earlier 54): sell a residential house, reinvest the gain in another residence.
• Section 86 (earlier 54F): sell any other long-term asset, invest the proceeds in a residential house.
• Section 85 (earlier 54EC): invest the gain in specified bonds, capped at ₹50 lakh.
• Section 83 (earlier 54B): agricultural land rollover.

The conditions and timelines travel with them. When you read older guidance citing “section 54”, map it to section 82 and the substance holds.

Two practical notes on using these. First, the exemptions reduce the taxable gain, not the TDS a buyer deducts — so a seller planning to reinvest still needs to manage the deduction at sale time. Second, the timelines are strict: money parked in neither the new asset nor the capital gains account scheme by the return-filing deadline loses the exemption. Plan the reinvestment before the sale deed, not at filing time.

Selling as an NRI? Read this first

Two things change when the seller is a non-resident. First, the indexation option does not apply — an NRI pays 12.5% on the un-indexed long-term gain, full stop. Second, the buyer must deduct TDS on the entire sale consideration, not the gain, unless the seller obtains a lower or NIL deduction certificate beforehand. That certificate process — now Form 128 under section 395 — is covered in our guide to the lower TDS certificate for NRIs selling property. Plan it before the sale agreement is signed, not after.

The 12.5%-versus-20% choice is decided by arithmetic, not preference. We run both computations on every eligible property sale — the answer is sometimes a surprise to the seller.

Where capital gains meets the rest of your return

A few connected points worth knowing. Gains are reported in the return now filed under section 263 (earlier 139) of the new Act — the wider business-side changes are in our guide to what the Income-tax Act 2025 means for your business. If you are the buyer in a property deal, your TDS obligations — including the new Form 141 — are covered in TDS under the Income-tax Act 2025. Note also that the section 87A-style rebate does not apply against special-rate gains, so a “zero tax up to ₹12 lakh” salary year can still carry a capital gains bill.

Our direct tax practice handles capital gains computations, exemption planning and sale-time TDS for residents and non-residents alike. If a sale is on your horizon this year, talk to us before you sign — the sequencing decides most of the tax.