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Capital Gains on Land: LTCG, STCG and Indexation (2026)
How tax on a land sale works for agricultural and non-agricultural land, why rural agricultural land is outside capital gains, and what the 2024 and 2025 changes mean.
Whether your profit on a land sale is taxed as capital gains depends first on what kind of land it is. Rural agricultural land is not a capital asset, so its sale is outside the head capital gains. Urban agricultural land and non-agricultural land are taxed. This guide uses the Income Tax Department's own pages, including the Income-tax Act, 2025 that applies from 1 April 2026.
Which Act applies now
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 for tax years starting 1 April 2026, and section numbers changed. The Income Tax Department's website shows both Acts. Where we read the 2025 Act on the Department's page we give its section number. Where we could only read the 1961 Act, we say "under the earlier Income-tax Act, 1961" and "we could not confirm the current section number". Older transfers can still be examined under the 1961 Act.
For the circle rate rule that can change your sale value, see Section 50C and 56(2)(x). For reinvestment relief on farmland, see capital gains on agricultural land: 54B and 54F.
Tax rules change; check the current year
Tax rates, holding periods and exemption limits are revised in the Finance Act each year, and the Income-tax Act, 2025 replaced the 1961 Act for tax years starting 1 April 2026. Check the current text on incometaxindia.gov.in or with a chartered accountant. This page is general information and not tax advice.
Rural vs urban agricultural land
The Department's FAQ on the taxability of capital gains from the sale of agricultural land says there are two categories, rural agricultural land and urban agricultural land. Gains on rural agricultural land are not chargeable under the head capital gains because such land is specifically excluded from the definition of a capital asset. Gains on urban agricultural land are chargeable under capital gains.
The test sits in the definition of capital asset. Under the earlier Income-tax Act, 1961, section 2(14)(iii) treats agricultural land in India as a capital asset only if it lies in a municipality or cantonment board area with a population of not less than ten thousand, or within a stated aerial distance of such an area. The distances on the Department's page are:
| Population of the nearby municipality or cantonment | Land counts as a capital asset if within (aerial distance) |
|---|---|
| More than 10,000 and up to 1 lakh | 2 kilometres |
| More than 1 lakh and up to 10 lakh | 6 kilometres |
| More than 10 lakh | 8 kilometres |
Population is taken from the last census whose figures were published before the first day of the year. We could not confirm the section number of this definition in the Income-tax Act, 2025, so verify it there. Also remember that the distance is measured in a straight line, not by road, and that municipal limits are extended from time to time. A plot that was rural when you bought it may be urban when you sell. Check with your adviser using the current notification.
Short term or long term
Under the earlier Income-tax Act, 1961, section 2(42A) treats an asset as short term if held for not more than thirty-six months, and the third proviso replaces this with twenty-four months for immovable property that is land or building, a change dated by the page to 1 April 2018. We could not confirm the section number of this holding period test in the Income-tax Act, 2025. We also could not confirm the rate for short-term gains on land, so we do not print one. Ask your adviser, and check the current rate on the Department's site.
The date counted is the date of transfer against the date of acquisition. Your sale deed date and the earlier agreement date can differ, so keep both records. See the sale deed guide.
Long-term gains: the 12.5% rule and land bought before 23 July 2024
Section 197 of the Income-tax Act, 2025 is titled "Tax on long-term capital gains". Sub-section (1) charges long-term capital gains at 12.5%.
Sub-section (3) has a special rule for land and building acquired before 23 July 2024 and transferred by a resident individual or Hindu undivided family. It ignores an "excess income-tax" amount, defined as A minus B, where A is the tax at 12.5% and B is the tax recomputed at 20% using the indexed cost of acquisition and indexed cost of improvement. In plain terms, the taxpayer is not worse off than the old 20% with indexation method for such land.
The indexed cost is defined in section 72(8): the cost is scaled by the ratio of the Cost Inflation Index for the year of transfer to the index for the year of acquisition, or the year beginning 1 April 2001 if later. The index itself is notified by the Central Government. We did not read the index numbers and do not print them.
| Item | Illustration (invented numbers) |
|---|---|
| Tax at 12.5% without indexation (A) | Rs 10,00,000 |
| Tax at 20% with indexed cost (B) | Rs 8,00,000 |
| Excess ignored (A minus B) | Rs 2,00,000 |
| Tax payable under this method | Rs 8,00,000 |
These figures are made up to show the formula. Real results depend on cost, improvements, index values and other income. Section 197(2) adds a low-income adjustment for residents, but the page does not state the exemption limit, so we do not either.
What changed after the 2024 Budget
The structure we can confirm from the Department's pages today is the one above: a 12.5% long-term rate in section 197, with a carve-out for land and building bought before 23 July 2024 for resident individuals and HUFs. We did not open the Finance Act, 2024 or the Budget speech, so we do not describe the old rule or the date of the change beyond what the section itself states. Other taxpayers, such as companies and non-residents, are outside the carve-out as it reads in sub-section (3). Non-resident sellers should take specific advice.
If you bought land before that date, keep the old purchase deed, receipts for improvements and records of the date of acquisition. If you inherited the land, the cost and the holding period rules for inherited assets are separate, and we could not confirm the 2025 Act section for them.
Reinvestment relief for land sales
The Department's pages for the Income-tax Act, 2025 show these routes. The section numbers are the 2025 Act; the old 1961 section is given in the second column for readers who know it.
| 2025 Act section | Earlier 1961 section | What we read on the Department's page |
|---|---|---|
| 83 | 54B | Individual or HUF; land used for agriculture by the taxpayer, a parent or the HUF in the two years before transfer; buy other agricultural land within two years after transfer; if the new land is transferred within three years its cost is reduced |
| 85 | 54EC | Invest in bonds issued on or after 1 April 2018 by NHAI or REC, or other notified bonds, within six months; investment from gains not above Rs 50 lakh in the stated period; if the bond is transferred or converted into money within five years the exemption is withdrawn |
| 86 | 54F | Individual or HUF; long-term gain on an asset other than a residential house; buy one house in India within one year before or two years after, or build within three years; cost above Rs 10 crore ignored |
| 82 | 54 | Relief for a residential house; buy within one year before or two years after, or build within three years; two houses option when gains do not exceed Rs 2 crore |
The unused gain can be deposited in a specified bank under a notified scheme before the return due date. See the Capital Gains Account Scheme. The 1961 equivalents come from the Department's page on exemptions, "as amended by the Finance Act, 2026", which also confirms the Rs 10 crore cap in section 54.
When land sale is business income, not capital gains
The definition of capital asset excludes stock-in-trade held for business. A developer who plots and sells land as a business is dealing in stock, so the profit is business income and not capital gains. A farmer selling inherited land is in a different position. We could not confirm from the Department's pages where the line falls for a person who buys several plots and sells them quickly, so ask a chartered accountant before you decide how to report.
Related items: if you are an individual buyer paying above Rs 50 lakh, see TDS on property purchase. If you plan to sell, read how to sell agricultural land and tax benefits of agricultural land.
Compulsory acquisition of agricultural land
The Department's page on section 54B under the earlier Act also notes that section 10(37) separately exempts gains from compulsory acquisition of agricultural land where the consideration is approved by the Central Government or RBI and received on or after 1 April 2004, subject to the section's conditions. We could not confirm the equivalent section in the Income-tax Act, 2025, so check it if your land is acquired for a highway or other project. See also how to check government acquisition notices.
Seller's checklist before the deed
- Identify the land: is it rural agricultural land, urban agricultural land or non-agricultural? Check the municipal limit and census population with the revenue office.
- Collect the purchase deed, date of acquisition, receipts for improvements and any inheritance or gift papers.
- Compare the agreed price with the circle rate; see circle rate vs market rate.
- Decide on reinvestment relief early and keep the timeline in a diary.
- Use banking channels for receipts so that the date-of-agreement rules are available to you.
- Take written advice from a chartered accountant before signing.
What is unconfirmed
We could not confirm the section numbers in the Income-tax Act, 2025 for the definition of capital asset, the holding period test and compulsory acquisition relief. We could not confirm the short-term capital gains rate on land. We did not open the Finance Act, 2024 or the 2025 Act's transition provisions, so the description of the 2024 change is limited to what section 197 itself shows. We did not read the Cost Inflation Index numbers. The 1961 text we read was the version on the Department's website and may not be the latest amended text.
Frequently Asked Questions
Is tax payable on sale of rural agricultural land?
How do I know if my land is rural or urban for this purpose?
What is the long-term capital gains rate on land?
What is the 23 July 2024 rule?
Is indexation still available?
How long must I hold land for it to be long term?
Which sections give relief if I reinvest?
Does the circle rate affect my capital gain?
Is inherited farmland taxed on sale?
Where do I check the current rules?
Sources
- Income Tax Department: Income-tax Act, 2025, section 197 (Tax on long-term capital gains)
- Income Tax Department: Income-tax Act, 2025, section 72 (Mode of computation of capital gains)
- Income Tax Department: Income-tax Act, 2025, section 83
- Income Tax Department: Income-tax Act, 2025, section 85
- Income Tax Department: Income-tax Act, 2025, section 86
- Income Tax Department: Income-tax Act, 2025, section 82
- Income Tax Department FAQ: taxability of capital gain on sale of agricultural land
- Income Tax Department: Income-tax Act, 1961, section 2 (definitions)
- Income Tax Department: exemption on transfer of agricultural land (section 54B, 1961 Act, as amended by the Finance Act, 2026)
- Income Tax Department: various exemptions available from capital gains
