Capital Gains Tax Rules 2025: New Flat Tax System on Property Sales, Know ITR Forms and Exemptions

Have you sold any property in the last financial year? If yes, then it’s important to understand the recent changes introduced in Capital Gains Tax rules that directly affect property owners. The government has rolled out a new tax framework from 2025, which simplifies the system but also removes certain benefits that taxpayers previously enjoyed.

Flat 12.5% Tax on Capital Gains

Under the earlier system, long-term capital gains on the sale of property were taxed at 20% with the benefit of indexation. Indexation allowed taxpayers to adjust the purchase price of the property according to inflation, reducing the overall tax burden.

From 2025 onwards, this provision has been replaced with a flat 12.5% tax rate on long-term gains. While the lower rate seems attractive on the surface, the removal of indexation could increase the effective tax liability in cases where the property was held for a long period and inflation significantly raised the cost of purchase.

In short, the system has become simpler but may not necessarily be cheaper for all sellers.

Which ITR Form Should You Use?

Another crucial question for property sellers is: Which Income Tax Return (ITR) form should you file?

• If your income is primarily from salary or pension, along with capital gains from property sales, you are required to file ITR-2.

• On the other hand, if you earn income from a business or profession in addition to property sales, then you must file ITR-3.

Filing the correct form ensures that your return is processed smoothly and helps you claim all eligible exemptions without any hurdles.

Tax Relief Under Income Tax Act

Even with the new system, the Income Tax Act continues to provide relief under certain sections for taxpayers who reinvest their capital gains.

• Section 54: If you sell a residential house and reinvest the proceeds into purchasing or constructing another residential property within the prescribed time frame, you can claim an exemption on the capital gains tax.

• Section 54F: This applies when you sell any other type of property, such as land or a plot, and reinvest the amount into a residential house. This also qualifies you for tax exemption, subject to certain conditions.

These provisions remain valuable for individuals looking to minimize their tax liability while reinvesting in real estate.

Practical Example

Suppose you purchased a property in 2010 for ₹30 lakh and sold it in 2024 for ₹90 lakh. Under the old regime, indexation would increase your purchase cost to around ₹55–60 lakh (considering inflation). This meant your taxable gain would be only ₹30–35 lakh, taxed at 20%.

Now, under the new rule, your gain of ₹60 lakh (90 – 30 lakh) is taxed directly at 12.5%, resulting in a higher tax outgo despite the lower rate. This shows how the absence of indexation can impact long-term property holders.

Final Takeaway

The government’s revised Capital Gains Tax rules for 2025 aim to simplify compliance with a flat 12.5% tax rate. However, sellers must carefully evaluate whether the absence of indexation increases their liability. Choosing the correct ITR form and exploring available exemptions under Sections 54 and 54F remain crucial for effective tax planning.

If you are planning to sell property or have already sold one in the past year, consulting a tax advisor can help you make informed decisions and avoid unnecessary tax burdens.