This guide explains the 24-month rule in full: how the holding period is calculated, what changes on each side of the line, what the current tax rates are under the July 2024 budget changes, and what options are available if you find yourself on the wrong side of the threshold.
What Is the 24-Month Rule?
Under Section 2(42A) of the Income Tax Act, immovable property (land, buildings, apartments) is classified as a long-term capital asset if held for more than 24 months from the date of acquisition. Sell within 24 months and the gain is short-term. This threshold is specific to real estate — equity shares, for example, qualify as long-term after just 12 months.
For properties acquired on or before 10 July 2014, the earlier 36-month threshold applied. Properties purchased from 11 July 2014 onwards are subject to the 24-month rule. If your property was acquired before mid-2014, verify which threshold applies to you.
Short-Term vs Long-Term Capital Gains: Key Differences
| Feature | Short-Term (≤ 24 months) | Long-Term (> 24 months) |
|---|---|---|
| Tax rate | Your income tax slab rate (up to 30%) | 12.5% without indexation (NRIs cannot choose 20% with indexation) |
| Indexation benefit | Not available | Not available to NRIs. Only resident individuals and HUFs can choose 20% with indexation, for property bought before 23 July 2024 |
| Exemptions (Section 54/54F) | Not available | Available — reinvest gains in another residential property |
| Exemptions (Section 54EC) | Not available | Available — invest up to ₹50 lakh in NHAI/REC bonds |
| TDS rate (buyer deducts) | Slab rate on capital gains | 12.5% + surcharge + cess on capital gains |
| Form 13 (Lower TDS) | Available but rarely useful | Highly recommended — reduces TDS to actual tax |
How the Holding Period Is Calculated
The clock starts on the date of acquisition — typically the date of the registered sale deed in your name. However, several situations require careful interpretation:
- Under-construction property: The holding period starts from the date of the builder-buyer agreement or allotment letter, not the date of possession or registration.
- Inherited property: The holding period of the previous owner is included. If your parent held the property for 5 years before you inherited it, and you sell 1 year later, it's a long-term asset (6+ years total).
- Gifted property: Similar to inherited — the original owner's holding period carries over.
- Joint ownership: Each owner's holding period is calculated independently based on when they acquired their share.
- Property purchased via loan/EMI: The date of the registered sale deed is the start date, not the date the loan was disbursed or fully repaid.
Current Tax Rates (After July 2024 Budget Changes)
The Union Budget 2024 (effective July 23, 2024) changed long-term capital gains tax on real estate significantly:
- Every sale on or after 23 July 2024: long-term capital gains are taxed at a flat 12.5% without indexation, plus surcharge and cess.
- Property bought before 23 July 2024: resident individuals and HUFs may compare 20% with indexation against 12.5% without and pay the lower. This option is not available to NRIs, so an NRI pays 12.5% without indexation whenever the property was bought.
- Short-term capital gains remain unchanged: taxed at your applicable income tax slab rate (up to 30% for NRIs in the highest bracket).
For NRIs selling property bought many years ago, losing indexation often means a higher tax bill than under the old 20% rule, because the inflation adjustment no longer reduces the taxable gain. The lower 12.5% rate helps most on recent purchases, where indexation would have added little. Reinvestment exemptions under the old Sections 54, 54F and 54EC (Sections 82, 86 and 85 of the Income-tax Act, 2025) remain the main way to cut the bill.
Use our capital gains calculator to compare both methods and see which saves you more.
TDS Implications: Short-Term vs Long-Term
When an NRI sells property, the buyer must deduct TDS under Section 393(2) (earlier Section 195). The TDS rate depends on whether the gain is short-term or long-term:
- Short-term: TDS is deducted at your income tax slab rate (up to 30%) on the capital gains.
- Long-term: TDS is deducted at 12.5% plus surcharge and cess on the capital gains.
- In both cases, the buyer deducts TDS on the capital gains amount, not the full sale value — but only if you have a Lower TDS Certificate (Form 128, earlier Form 13). Without it, the buyer may deduct on the full sale value.
Apply for a Lower TDS Certificate before the sale to avoid excess deduction. The certificate tells the buyer to deduct TDS at your actual tax rate rather than the default rate, which can save you from having to wait months for a refund.
What If You're on the Wrong Side of the 24-Month Threshold?
If you've held the property for less than 24 months and are facing short-term capital gains tax (up to 30%), consider these strategies:
- Wait: If you're close to the 24-month mark, delaying the sale by a few weeks or months can move you from short-term to long-term treatment, potentially halving your tax rate.
- Offset with capital losses: Short-term capital losses from other investments (stocks, mutual funds) can offset short-term capital gains on property, reducing your tax liability.
- Claim all deductible expenses: Brokerage, legal fees, stamp duty, and improvement costs all reduce your capital gains. Keep receipts.
- File your ITR and claim a refund: If the buyer deducted more TDS than your actual tax liability, file your Indian ITR to claim a refund.
How NRiSimplify Can Help
NRiSimplify's tax team determines whether your property sale is short-term or long-term, calculates your capital gains at the 12.5% rate that applies to NRIs, checks which reinvestment exemptions you qualify for, applies for a Lower TDS Certificate to prevent excess deduction, and files your ITR to claim any refund — all handled remotely.
›Frequently Asked Questions (FAQs)
Q1: Is the 24-month holding period calculated from the date of purchase or registration? The holding period starts from the date of the registered sale deed in your name. For under-construction properties, it starts from the date of the builder-buyer agreement or allotment letter.
Q2: Can I choose between 12.5% without indexation and 20% with indexation? Not as an NRI. The choice between 12.5% without indexation and 20% with indexation is open only to resident individuals and HUFs selling property bought before 23 July 2024. An NRI pays 12.5% without indexation on every long-term sale made on or after that date.
Q3: Does the holding period include the time the previous owner held inherited property? Yes. For inherited property, the holding period of the original owner is included in calculating whether the asset is long-term or short-term.
Q4: What TDS rate will the buyer deduct if I sell within 24 months? For a short-term gain, the buyer deducts 30% plus surcharge and 4% cess (31.2% to 39%), and in practice applies it to the full sale price, not just the gain. A lower TDS certificate on Form 128 (earlier Form 13) brings the deduction down to your actual tax.
Q5: Can I claim Section 54 exemption on short-term capital gains? No. Sections 54, 54F, and 54EC exemptions are only available for long-term capital gains. Short-term gains can only be offset by short-term capital losses.