Selling an Auction Property Later: Holding Period, Capital-Gains Tax and Reinvestment

Two Acts, two sets of section numbers

The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026 (Income-tax Act, 2025 s.1(3)). The rules on capital gains were carried across largely as they were, but the section numbers changed, and most articles, forms and advice you will find still use the old ones. The new Act also speaks of the “tax year” where the old one used the previous year and assessment year. This table maps the sections this guide uses.

Short-term or long-term: the 24-month line

A capital asset held for not more than 24 months immediately before the date you transfer it is a short-term capital asset; anything held longer is long-term (Income-tax Act, 2025 s.2(101)(a) and s.2(67); formerly s.2(42A)). For land, a flat or a house, 24 months is the line. The shorter twelve-month period applies only to listed securities and certain fund units, not to property.

A short-term gain on property has no special rate. It is added to your other income for the tax year and taxed at your slab rate. A long-term gain is taxed separately at the rate in s.197, and only a long-term gain qualifies for the reinvestment exemptions described below.

When the clock starts for an auction purchase

For an ordinary purchase the holding period is usually counted from the registered sale deed. A bank-auction purchase has several dated steps instead, and we have found no ruling or official guidance that says which of them starts the holding period for capital-gains purposes. The candidate dates are these.

1. 1

   Confirmation of sale

   The bank confirms the sale in favour of the highest bidder. In a court-auction case the Supreme Court held that title passes when the sale is confirmed and becomes absolute, and that the sale certificate is only evidence of that title (B. Arvind Kumar v. Govt of India, Supreme Court, 2007). It restated that position in 2024 for a sale confirmed by a company court (State of Punjab v. Ferrous Alloy Forgings, Supreme Court, 2024). Neither case was a SARFAESI sale.

   Rule 9(2)

2. 2

   Full payment and the sale certificate

   The bank issues the sale certificate once the full price is paid. The Supreme Court has also held that a SARFAESI sale is complete only on full payment and the sale certificate (Indian Overseas Bank v. RCM Infrastructure, Supreme Court, 2022).

   Rule 9(6)

3. 3

   Registration, if you present the certificate

   Registering the sale certificate is not compulsory, but many buyers present it for registration because lenders, municipal offices and later buyers ask for it. That gives a further dated document.

   Registration Act s.17(2)(xii), s.89(4)

The long-term rate: 12.5%, or 20% with indexation

Long-term capital gains are taxed at 12.5%, computed without indexation (Income-tax Act, 2025 s.197(1); formerly s.112, as amended from 23 July 2024). Surcharge and cess apply on top, as for the rest of your tax.

There is one choice to make. If you are a resident individual or a Hindu undivided family (HUF) and the property is land or a building acquired before 23 July 2024, the tax is limited to what it would be at 20% on a gain computed with indexation (s.197(3)). In effect you pay the lower of the two. Indexation raises your purchase cost by the Cost Inflation Index the government notifies each year (s.72(8)). For property acquired on or after 23 July 2024, the 12.5% rate without indexation is the only option.

Working out the gain: what counts as your cost

The gain is the full sale price, less the expenses of the sale (such as brokerage), less the cost of acquisition and the cost of any improvement (s.72(1); formerly s.48). For an auction purchase, the cost of acquisition is generally taken as the price you paid the bank plus the stamp duty and registration you paid on it.

• Keep receipts for the EMD, the 25% and the balance, and the stamp-duty and registration receipts if you registered the certificate.
• Keep bills for any improvement work, such as structural repairs or an added floor, with the dates paid.
• Arrears you paid to clear the property, such as old property tax, electricity or society dues: ask your tax adviser whether these can be added to your cost.
• If you were taxed at purchase because you bought below the stamp-duty value (s.92(2)(m); formerly s.56(2)(x)), the value taxed then becomes your cost of acquisition (s.73, Table: Sl. No. 17; formerly s.49(4)).

The stamp-duty value matters on the way out as well. If you sell for less than the stamp-duty value, that value is treated as your sale price, unless it is no more than 110% of the price you actually received (s.78; formerly s.50C). You can ask for the property to be referred to a Valuation Officer if you dispute the stamp-duty value.

Reinvesting the gain: s.82, s.86 and s.85

If you are an individual or HUF and you sell a residential house at a long-term gain, the gain is exempt to the extent you invest it in one residential house in India, bought within one year before or two years after the sale, or built within three years after it (s.82(1); formerly s.54). Key conditions:

• Any cost of the new house above ₹10 crore is ignored, which in effect caps the exemption (s.82(7)).
• If the gain is not more than ₹2 crore, you may buy or build two houses instead of one; this option can be used only once (s.82(5), (6)).
• Any gain not yet used by the return due date must be deposited in a specified bank under the government’s capital gains account scheme, with proof filed with the return (s.82(2)). An amount still unused after three years is taxed then (s.82(4)).
• If you sell the new house within three years, the exemption is clawed back by reducing its cost when you compute the gain on that sale (s.82(1)).

If what you sell is a plot or other long-term asset that is not a residential house, a similar exemption applies when you buy or build a house, but it is worked out on the net sale price rather than the gain, and it is not available if you already own more than one other house (s.86; formerly s.54F). A third route is to invest up to ₹50 lakh of a long-term gain on land or a building in specified bonds, such as those issued by NHAI or REC, within six months of the sale; the bonds must be held for five years (s.85; formerly s.54EC).

If the seller is an NRI

When a resident sells property and either the price or the stamp-duty value is ₹50 lakh or more, the buyer deducts 1% of the higher of the two as TDS (tax deducted at source) (s.393(1), Table: Sl. No. 3(i); formerly s.194-IA), as our guide to TDS on an auction purchase explains. When the seller is a non-resident, that 1% does not apply. The buyer instead deducts tax at the rates in force on the amount chargeable to tax, which means on the capital gain at the capital-gains rate plus surcharge and cess (s.393(2), Table: Sl. No. 17; formerly s.195). A resident individual or HUF buyer reports it in Form 141, Schedule E.

An NRI seller can apply to the Assessing Officer for a certificate allowing a lower or nil deduction where the tax actually due is less (s.395). Bringing the proceeds abroad is a separate question under FEMA, covered in our guide for NRI buyers. In both cases, take advice from a tax professional for your own case.

Questions buyers ask

Sources

Statutes, rules and judgments first. Checked as of 17 October 2026; the law and portal practice change, so confirm against the source before relying on a detail.

1. StatuteThe Income-tax Act, 2025 (No. 30 of 2025), Gazette of India, 21 Aug 2025 — ss.2(67), 2(101), 72, 73, 78, 82, 85, 86, 92, 197, 393, 395
2. JudgmentIndian Overseas Bank v. RCM Infrastructure Ltd, Supreme Court, 18 May 2022
3. RulesSecurity Interest (Enforcement) Rules, 2002 — Rule 9
4. JudgmentState of Punjab v. Ferrous Alloy Forgings, Supreme Court, CA 12527/2024, 19 Nov 2024 (2024 INSC 890) — paras 16–17, restating B. Arvind Kumar v. Govt of India, (2007) 5 SCC 745