Selling Property This Year? Four Routes That Can Take Your Tax to Zero

Ten days from now, the easiest exemption closes for April's sellers#

If you registered a sale deed in the first week of April 2026 and have been putting off the tax question, you have until roughly the end of this month to use the one exemption that needs no builder, no possession date and no site visit. Section 85 of the Income-tax Act, 2025 allows six months from the date of transfer to move a long-term gain on land or a building into specified bonds. Sell on 1 April and the window closes at the end of September. Miss it and the route simply shuts, whatever the reason.

There is a second reason this year is awkward. The section numbers changed. The Income-tax Act, 2025 replaced the 1961 Act with effect from 1 April 2026, and the capital gains exemptions were renumbered wholesale. Section 54 is now Section 82. Section 54EC is Section 85. Section 54F is Section 86. Section 54B, for farmland, is Section 83. Your chartered accountant knows this. Much of the internet does not, and still cites a statute that no longer governs the sale you made in June.

The substance mostly survived the renumbering. The deadlines did too, which is the part that catches people.

What the taxman is actually taxing#

Sell a house, a plot or a shop and the profit is a capital gain, not income from salary or business. The holding period decides everything that follows. Hold immovable property for more than 24 months and the gain is long term; sell sooner and it is short term, taxed at your ordinary slab rate with no exemption available under any of the sections below.

For a long-term gain, the Income Tax Department states the position plainly: gains are taxable at 12.5% without indexation, while resident individuals and HUFs may opt for 20% with indexation on land or a building acquired before 23 July 2024. The mechanism sits in Section 197(3) of the 2025 Act, which computes the indexed figure and then ignores the excess tax. You get whichever is cheaper, but you have to work out both.

Indexation means restating what you paid in today's money using the cost inflation index. CBDT notified the index for 2026-27 at 384 through notification S.O. 3889(E) dated 15 July 2026, up from 376 the previous year. The base year is 2001-02 at 100.

Take a flat bought in June 2015 for ₹40 lakh and sold in July 2026 for ₹1.10 crore. The index for 2015-16 was 254, so the indexed cost becomes ₹60.47 lakh and the taxable gain ₹49.53 lakh. Twenty per cent of that, plus the 4% health and education cess, is ₹10.30 lakh. Ignore indexation and the gain is the full ₹70 lakh, taxed at 12.5% plus cess, which comes to ₹9.10 lakh. The unindexed route wins by ₹1.20 lakh.

That result is not universal. Indexation wins when the property was held a long time and appreciated slowly. The Reserve Bank's house price index rose 3.6% in the year to June 2026, released on 24 August, down from 4.5% the quarter before. At that pace, indexation is worth having. At Gurugram or Bengaluru appreciation rates it usually is not.

Route one: buy another roof, Section 82#

The oldest relief is the simplest. Sell a residential house and buy another residential house in India, and the gain escapes tax to the extent you spend it.

Section 82 carries forward the conditions of the old Section 54 almost word for word. Only individuals and HUFs qualify. The new house must be bought within one year before or two years after the sale, or built within three years of it. If you sell the replacement within three years, the exemption is clawed back by reducing its cost of acquisition, so the gain resurfaces later.

Two ceilings matter. The cost of the new house counts only up to ₹10 crore, a cap introduced from assessment year 2024-25 and retained. And where the capital gain does not exceed ₹2 crore, you may buy or build two houses instead of one, an option available once in a lifetime and never again.

The word "gain" is doing quiet work here. You do not have to reinvest the whole sale price under this section, only the profit. Sell for ₹1.10 crore with a gain of ₹70 lakh and a ₹70 lakh purchase wipes out the tax. The remaining ₹40 lakh is yours.

Route two: the bond that pays 5.25% and asks for five years#

If no house is wanted, Section 85 replaces Section 54EC. Long-term gains from land or a building go into bonds redeemable after five years, issued by REC, PFC or IRFC, and since 2025 also by HUDCO and IREDA, both added by CBDT notification. The window is six months from the date of transfer, the ceiling ₹50 lakh, and that ceiling applies across the year of transfer and the following year taken together, so splitting a sale across two Marches does not buy you ₹1 crore of shelter.

The bonds currently pay 5.25% a year, in units of ₹10,000, and the interest is fully taxable at your slab rate with no tax deducted at source for residents. Taking a loan against the bonds counts as converting them into money, which revives the whole exempted gain as taxable in that year.

Now the arithmetic people skip. On a ₹50 lakh gain, paying the tax costs ₹6.5 lakh and leaves ₹43.5 lakh free. Buying the bonds locks ₹50 lakh away and pays ₹13.13 lakh of gross interest over five years, or about ₹9.03 lakh after tax at the 30% slab plus 4% cess, ending at roughly ₹59.03 lakh. For the ₹43.5 lakh to catch up, it would have to earn about 6.3% a year after tax for five years. That is a real hurdle. Whether you clear it is a question about your own portfolio, not about the bond.

Route three: you sold a plot, not a flat, Section 86#

Section 82 only covers a residential house. Sell a plot, a shop, gold or unlisted shares and you need Section 86, which replaces Section 54F and behaves differently in one expensive way.

Here the exemption is proportionate to the net consideration, not the gain. Reinvest the entire sale proceeds in one residential house and the whole gain is exempt. Reinvest half and half the gain is exempt. The relevant number is the full sale price, not the profit.

There is also an ownership test that disqualifies more people than they expect. You must not own more than one other residential house on the date of transfer, and you must not buy another one within a year or build one within three years. The enacted 2025 Act tightened this: the Bill as introduced had allowed two years for that second purchase, and the final text cut it to one. The ₹10 crore ceiling applies here as well, both to the cost of the new house and to the net consideration taken into account.

Route four: park it, and the deadlines that kill claims#

Property deals rarely settle in time. If you have not bought the replacement house before you file your return, Section 82(2) requires the unused amount to go into a deposit account under the Capital Gains Account Scheme at a notified bank, before the due date for filing under Section 263(1), with proof attached to the return. For a salaried seller in 2026-27 that means 31 July 2027, although self-employed filers without an audit now get until 31 August under Section 263 as amended by the Finance Act, 2026. Money left in the account unused after the two or three year window becomes taxable in the year the window shuts.

Two smaller mechanisms bite before any of this. The buyer must deduct 1% tax at source where the consideration crosses ₹50 lakh, now under Section 393(1) of the 2025 Act rather than Section 194-IA. And if the agreement value is below the stamp duty value, Section 78 generally substitutes the stamp duty value as the sale consideration, which means an undervalued deed can create a gain larger than the money you received.

Tribunals show some patience with honest mistakes. In April 2026 one allowed a Section 54 claim raised during reassessment although the taxpayer had not claimed it in the original return, holding that an assessing officer must account for exemptions arising from the same transaction. That is relief for people who filed badly. It is not a substitute for filing on time.

The four routes side by side#

Combining routes is permitted where the conditions of each are independently met, which is how a gain of ₹1 crore can legally end at nil tax: part into a house, up to ₹50 lakh into bonds. Whether that is sensible depends on how much of your money you want immobilised, and this article takes no view on that.

Key takeaways#

1. From 1 April 2026 the exemptions carry new numbers. Section 54 is Section 82, 54EC is 85, 54F is 86 and 54B is 83, under the Income-tax Act, 2025.
2. Long-term gains on property are taxed at 12.5% without indexation, or 20% with indexation if you are a resident individual or HUF who bought before 23 July 2024. You pay the lower of the two, but you must compute both.
3. The cost inflation index for 2026-27 is 384. It helps most on slowly appreciating property held for a long time, and barely at all on a fast riser.
4. Section 85 has the shortest fuse: six months from the date of transfer, capped at ₹50 lakh, with a five-year lock-in at 5.25%.
5. If the replacement purchase has not happened by the filing due date, the money must sit in a Capital Gains Account Scheme account by then, with proof filed. Late deposit is the single most common way a valid claim is lost.

Frequently asked questions#

Do I have to reinvest the whole sale price or only the profit? Under Section 82, only the capital gain. Under Section 86, the whole net consideration, and anything less gives you a proportionate exemption.

Can I claim Section 82 and Section 85 for the same sale? Yes, provided each condition is independently satisfied and you are not claiming the same rupee of gain twice.

What if the buyer pays me in instalments over two years? The gain arises in the year of transfer, generally on registration or handover of possession, not when each instalment lands. The exemption clocks run from that date.

Is the 5.25% bond interest tax free? No. Only the capital gain is exempt. The interest is taxable at your slab rate every year, and residents get no tax deducted at source on it.

I am buying the new flat in my wife's name. Does the exemption survive? This is contested and depends on the facts and the bench. Tribunals have allowed it where the seller funded the purchase entirely, and denied it elsewhere. Take specific professional advice before you register.

Does any of this apply to a plot of land I inherited? Yes. For property acquired from a previous owner by inheritance, that owner's cost and holding period carry over to you, so a house your father bought in 2003 is long term in your hands from day one.

What happens if I never use the money in the Capital Gains Account Scheme? The unused balance becomes taxable as a capital gain in the year the two or three year window expires, at the rates applying then.

Are NRIs covered by these sections? Sections 82, 85 and 86 are available to non-residents who meet the conditions, but the indexation option under Section 197(3) is restricted to resident individuals and HUFs, and the tax deducted at source on the sale is far higher.

Glossary#

Capital gain. Profit on the sale of a capital asset, computed as sale consideration minus cost of acquisition, cost of improvement and transfer expenses.

Long-term capital asset. For immovable property, one held for more than 24 months. Shorter holdings are short term and get no exemption under these sections.

Cost inflation index (CII). The government's annual inflation multiplier used to restate an old purchase price in current money. 384 for 2026-27, against a base of 100 in 2001-02.

Indexation. Adjusting the cost of acquisition by the CII so that inflation is not taxed as profit.

Net consideration. Sale price less expenses wholly and exclusively incurred on the transfer. It is the base for the Section 86 exemption, unlike Section 82 which works off the gain.

Capital Gains Account Scheme (CGAS). A notified bank account where a seller parks an unspent gain until the replacement property is bought, preserving the exemption at the filing stage.

Specified bonds. Five-year bonds of REC, PFC, IRFC, HUDCO or IREDA eligible under Section 85, capped at ₹50 lakh in total.

Stamp duty value. The circle rate the state assigns to a property. Where it exceeds the agreement value, it is generally substituted as the sale consideration for tax.

References#

1. Government of India, Income-tax Act, 2025, in force from 1 April 2026
2. Income Tax Department, Section 54: exemption to capital gains arising on transfer of residential house property
3. Income Tax Department, exemptions from capital gains
4. Income Tax Department, tax deducted at source on purchase of immovable property, the 1961 Act position under Section 194-IA
5. Income Tax Act, 2025, Section 82(2), deposit of unutilised capital gain
6. Income Tax Act, 2025, Section 86(1), capital gains on transfer of assets other than a residential house
7. Section 85, capital gains not to be charged on investment in certain bonds
8. Section 197, tax on long-term capital gains, including the 20% indexation option at sub-section (3)
9. Income Tax Department, capital gain: rates, and Section 78 on stamp duty value as full value of consideration
10. TaxTMI, Section 86 as passed compared with the Income-tax Bill, 2025, including the shortened one-year disqualification window
11. TaxTMI, Clause 393(1) of the Income-tax Act, 2025 compared with Section 194-IA of the 1961 Act
12. CAclubindia, CBDT notifies cost inflation index of 384 for 2026-27, notification S.O. 3889(E) dated 15 July 2026
13. ABCAUS, cost inflation index table, 2001-02 to 2026-27
14. Reserve Bank of India house price index for the June 2026 quarter, reported 24 August 2026
15. HDFC Securities, Section 54EC capital gain bonds: issuers, coupon, tenure and limits
16. Bondscanner, REC capital gain bonds, coupon and investment terms, April 2026
17. Business Standard, tribunal allows a Section 54 claim first raised in reassessment, 20 April 2026
18. Ebizfiling, Section 82 of the Income-tax Act, 2025: conditions, caps and lock-in
19. CAclubindia, CBDT notification 31/2025 making HUDCO bonds eligible under Section 54EC
20. Taxmann, CBDT notifies IREDA bonds as eligible for the Section 54EC exemption
21. Google Ads search volumes for India, retrieved through DataForSEO, 20 September 2026

This article is journalism, not tax or investment advice. Rates, index values and bond terms quoted were those available on 20 September 2026 and change. Capital gains outcomes turn on the facts of each transaction, including dates of possession and registration. Verify your own position with a qualified chartered accountant before acting.