A family sells an ancestral flat, receives the money, repays a loan and treats the matter as closed. When the return is filed, the capital gain is computed on the agreement value, the stamp duty value is ignored, and one co-owner does not report his share at all. To the family it was a private sale. To the Income Tax Department it was a registered transaction, reported by the sub-registrar, with TDS deposited by the buyer against each seller's PAN. This article explains how property sales are captured, how capital gains are now computed, and the reporting mistakes that most often lead to notices.
Yes. When property worth ₹30 lakh or more is registered, the registrar reports it to the Income Tax Department through SFT, and buyers of property of ₹50 lakh or more deduct 1% TDS against the seller's PAN. Both appear in the seller's AIS. Your return must report the sale, compute capital gains using the stamp duty value where section 50C applies, and claim any exemption correctly.
How does the tax department know about your property sale?
A registered property sale leaves at least three data trails that reach the department independently of the seller.
So when the seller files the return, the department is not discovering the sale. It is verifying the seller's numbers against data it already holds.
If it is registered, it is reported. Non-reporting of a registered sale is one of the easiest mismatches for the system to detect.
Section 50C: when stamp duty value replaces your sale price
Under section 50C of the Income-tax Act, 1961, if the stamp duty value of land or building exceeds the actual sale consideration by more than 10%, the stamp duty value is treated as the full value of consideration for computing capital gains. If the difference is within 10% of the consideration, the actual price is accepted. The Income-tax Act, 2025 contains a corresponding provision.
Where the agreement fixing the price was made earlier and at least part of the consideration was received through a banking channel on or before the agreement date, the stamp duty value on the agreement date can be used. If the seller disputes the stamp duty value, a reference to a valuation officer can be sought in assessment.
The rule has a mirror image for the buyer. Where property is bought below stamp duty value beyond the tolerance, the difference can be taxed in the buyer's hands as income from other sources (section 56(2)(x) of the 1961 Act and its corresponding provision).
Computing gains on the agreement value when the stamp duty value is more than 10% higher is a common cause of mismatch notices, because the stamp duty value is already in the department's data.
Capital gains tax on property after the July 2024 changes
Immovable property held for more than 24 months is a long-term capital asset. The Finance (No. 2) Act, 2024 changed the tax for transfers on or after 23 July 2024, and the Income-tax Act, 2025 carries the same structure into section 197 (tax on long-term capital gains).
| Situation | Tax treatment |
|---|---|
| Held 24 months or less | Short-term capital gain, taxed at normal slab rates |
| Held more than 24 months, transferred on or after 23 July 2024 | Long-term capital gain at 12.5%, without indexation |
| Resident individual or HUF, land or building acquired before 23 July 2024 | Tax limited to the lower of 12.5% without indexation and 20% with indexation |
| Non-resident seller | 12.5% without indexation; buyer deducts TDS on the gain at applicable rates rather than the flat 1% |
Surcharge and health and education cess apply on top of these rates. Indexation is not always the better option: where the property was bought relatively recently or at a high price, 12.5% without indexation can produce the lower tax.
Illustrative computation
A resident individual bought a flat in 2014-15 for ₹40 lakh (cost inflation index 240) and sells it in 2025-26 (cost inflation index 376) for ₹1.20 crore. The stamp duty value is ₹1.25 crore, which is within 10% of the price, so ₹1.20 crore is the full value of consideration.
- Option 1, 12.5% without indexation: gain ₹80 lakh, tax ₹10.00 lakh.
- Option 2, 20% with indexation: indexed cost ₹62.67 lakh (40 × 376 ÷ 240), gain ₹57.33 lakh, tax ₹11.47 lakh.
The lower figure, ₹10.00 lakh, applies (before surcharge and cess). The buyer deducts 1% TDS of ₹1.20 lakh, which the seller claims as credit.
If the stamp duty value had been ₹1.40 crore, more than 10% above the price, the gain would be computed on ₹1.40 crore instead, adding ₹20 lakh to the gain.
Exemptions: sections 54, 54EC and 54F
Long-term gains on property can be reduced or eliminated through reinvestment, subject to strict conditions. Under the 1961 Act:
- Section 54: gain on sale of a residential house invested in another residential house in India, purchased one year before or two years after the sale, or constructed within three years. The exemption is capped at ₹10 crore.
- Section 54EC: gain on land or building invested within six months in specified bonds, up to ₹50 lakh in a financial year, with a five-year lock-in.
- Section 54F: net consideration from sale of any long-term asset other than a residential house invested in a residential house, subject to conditions on other houses owned, and the same ₹10 crore cap.
If the reinvestment is not complete by the return due date, the unutilised amount must be deposited in the Capital Gains Account Scheme before that date to keep the exemption alive. The Income-tax Act, 2025 has corresponding provisions; confirm current section references and limits before claiming.
Common reporting mistakes that lead to notices
- Not reporting the sale at all, often because the proceeds were reinvested and the seller assumed no tax was due. An exempt gain must still be reported and the exemption claimed.
- Ignoring the stamp duty value where it exceeds the price by more than 10%.
- Co-owners not reporting their shares. Each co-owner reports his or her share of consideration and gain; the registrar's report and TDS will reflect each seller.
- Not claiming TDS credit, or claiming it in the wrong year.
- Unsupported cost or improvement claims, such as renovation without bills or an inflated fair market value as on 1 April 2001 without a valuation report.
- Exemption claimed without timely reinvestment or deposit in the Capital Gains Account Scheme.
- Cash components not reflected in the deed, which also expose the buyer and seller to other provisions.
Where a property sale is part of a broader set of transactions, the department may also test how the proceeds were used. Our article on high-value transactions and SFT reporting explains how these data points are combined.
Checklist before you file the return for a property sale
- Collect the documents. Sale deed, purchase deed, stamp duty valuation, payment trail, improvement bills and loan papers.
- Check AIS and Form 26AS. Confirm the SFT entry, the sale value reported and the buyer's TDS against your PAN.
- Apply the stamp duty value test. Compare stamp duty value with the price and decide the full value of consideration.
- Compute both tax options where the property was acquired before 23 July 2024 and you are a resident individual or HUF.
- Plan exemptions before the due date. Reinvest or deposit in the Capital Gains Account Scheme in time.
- Align co-owners. Ensure each co-owner reports the correct share in his or her own return.
- Report in the capital gains schedule. Fill in the property details and claim TDS credit.
Frequently asked questions
Is my property sale automatically reported to the Income Tax Department?
Yes, in most cases. Registrars report property transactions of ₹30 lakh or more through SFT, and buyers deduct and report TDS where the consideration is ₹50 lakh or more. Both appear in the seller's AIS.
Do I need to report a property sale if I reinvested the money and claim exemption?
Yes. The sale and the capital gain must be reported in the return, and the exemption claimed in the capital gains schedule. Not reporting an exempt sale still creates a mismatch with the department's data.
What if the stamp duty value is higher than my sale price?
If the stamp duty value exceeds the actual price by more than 10%, it is treated as the sale consideration for capital gains under section 50C. Within the 10% tolerance, the actual price is accepted. You can dispute the valuation in assessment.
What is the tax rate on long-term capital gains from property now?
For transfers on or after 23 July 2024, long-term gains are taxed at 12.5% without indexation. Resident individuals and HUFs selling land or buildings acquired before that date pay the lower of 12.5% without indexation and 20% with indexation, plus surcharge and cess.
How is TDS on property sale shown in my tax records?
The buyer deposits TDS at 1% of the consideration, where it is ₹50 lakh or more, and it appears in your Form 26AS and AIS. You claim it as credit in your return for the year of sale.
Can a property sale be questioned years later?
Yes. If income from a sale has escaped assessment, the year can be reopened within the statutory time limits, which are longer where the escaped income is larger. Correct reporting in the year of sale avoids this risk.
Conclusion
A property sale is no longer a private event for tax purposes. The registrar, the buyer's TDS and the stamp duty valuation place it in the department's data before the seller files a return. Accurate reporting, using the right consideration, the right tax option and properly supported exemptions, is the only position that holds up when the data is compared.
If you have sold or are planning to sell property, review the computation, exemptions and co-owner reporting before filing. Where a past sale was missed or under-reported, correcting it early is far less costly than responding to a reassessment notice. See also our guide on reassessment time limits.
Received a tax notice or planning a transaction?
H K Davra & Co. advises on income tax assessments, notices, appeals and documentation.
Talk to usThis article is for general information only and does not constitute professional advice or solicitation. Examples are illustrative and exclude surcharge and cess. Section references are to the Income-tax Act, 1961 unless stated; for the 2026-27 tax year onwards, the corresponding provisions of the Income-tax Act, 2025 apply. Provisions are summarised as of October 2026. Please refer to the relevant provisions and seek advice on your specific facts.