Budget 2024 rewrote property capital-gains tax mid-year. For properties acquired before 23 July 2024, sellers now get a taxpayer-friendly choice: pay LTCG at 12.5% flat (no indexation) OR the old 20% with CII indexation — whichever is lower. Properties acquired after that date are stuck with 12.5% flat. This post walks through when each option wins, with worked numbers.
The short answer
- Long holding (15+ years): 20% with indexation usually wins — CII has compounded enough that the indexed cost shields a bigger chunk of gain.
- Short holding (2-8 years): 12.5% no-indexation usually wins — CII hasn’t grown much and the simpler flat rate is lower.
- The crossover: around 10-12 year holding, both options produce roughly the same tax. Shorter → 12.5%, longer → 20% w/ indexation.
- Everyone acquired < 23 Jul 2024 gets the choice. Everyone acquired after is stuck at 12.5%.
Why the choice exists — politics of Budget 2024
The original Budget 2024 proposal removed indexation entirely and lowered the rate from 20% to 12.5%. Middle-class property owners who’d held for decades realised their tax bills would go up because indexation’s shield was worth more than the lower rate for them. Public backlash (July 2024) led to the amended provision: pre-Jul-2024 properties get a choice.
Properties bought 23 Jul 2024 onwards get only the new 12.5% flat rate. The grandfathering protects existing owners and is the taxpayer-friendly outcome.
The two formulas
Option A — 12.5% flat, no indexation
LTCG = Sale price − Acquisition cost − Improvements Tax = LTCG × 12.5%
Option B — 20% with CII indexation
Indexed cost = Acquisition cost × (CII sale year / CII acquisition year) LTCG = Sale price − Indexed cost − Indexed improvements Tax = LTCG × 20%
CII (Cost Inflation Index) is notified yearly by CBDT. FY 2001-02 is the base (CII = 100). FY 2024-25 is 363; FY 2026-27 projected at 391.
Worked example 1: ₹1 Cr → ₹2.5 Cr sale, 20-year hold
- Bought in FY 2006-07 for ₹1,00,00,000
- CII 2006-07: 122 (old base indexing) → we use the updated 2001-02 base where 2006-07 = 122
- Selling in FY 2026-27 for ₹2,50,00,000
- CII 2026-27: 391
Option A — 12.5% flat
- LTCG = 2.5 Cr − 1 Cr = ₹1.5 Cr
- Tax = 12.5% × 1.5 Cr = ₹18.75 L
Option B — 20% with indexation
- Indexed cost = 1 Cr × (391 / 122) = 1 Cr × 3.205 = ₹3.205 Cr
- LTCG = 2.5 Cr − 3.205 Cr = negative (capital loss of ₹70.5 L)
- Tax = ₹0 (no tax, and you get a loss to offset other LTCG)
Indexation wins decisively at this holding period. In fact, a capital loss against LTCG from other assets (equity, bonds) is a bonus of ~₹70.5 L × 12.5% = ₹8.8 L of recoverable tax shield.
Worked example 2: ₹80 L → ₹1.2 Cr sale, 6-year hold
- Bought in FY 2020-21 for ₹80,00,000
- CII 2020-21: 301
- Selling in FY 2026-27 for ₹1,20,00,000
- CII 2026-27: 391
Option A — 12.5% flat
- LTCG = 1.2 Cr − 80 L = ₹40 L
- Tax = 12.5% × 40 L = ₹5 L
Option B — 20% with indexation
- Indexed cost = 80 L × (391/301) = 80 L × 1.299 = ₹1.039 Cr
- LTCG = 1.2 Cr − 1.039 Cr = ₹16.1 L
- Tax = 20% × 16.1 L = ₹3.22 L
Indexation still wins here, by ~₹1.8 L. But margins are tighter — the gap would flip at shorter holdings or lower CII growth.
Worked example 3: ₹1 Cr → ₹1.3 Cr sale, 3-year hold
- Bought in FY 2023-24 for ₹1,00,00,000
- CII 2023-24: 348
- Selling in FY 2026-27 for ₹1,30,00,000
- CII 2026-27: 391
Option A — 12.5% flat
- LTCG = 1.3 Cr − 1 Cr = ₹30 L
- Tax = 12.5% × 30 L = ₹3.75 L
Option B — 20% with indexation
- Indexed cost = 1 Cr × (391/348) = 1 Cr × 1.1235 = ₹1.124 Cr
- LTCG = 1.3 Cr − 1.124 Cr = ₹17.6 L
- Tax = 20% × 17.6 L = ₹3.52 L
Tight — indexation wins by ₹23K. At slightly lower CII growth or slightly higher sale price, 12.5% would have won.
Worked example 4: ₹1 Cr → ₹1.5 Cr, 2-year hold
- Bought FY 2024-25 for ₹1,00,00,000 (pre-23-Jul-2024 — grandfathered)
- CII 2024-25: 363
- Selling FY 2026-27 for ₹1,50,00,000
- CII 2026-27: 391
Option A — 12.5% flat
- LTCG = 50 L
- Tax = ₹6.25 L
Option B — 20% with indexation
- Indexed cost = 1 Cr × (391/363) = ₹1.0771 Cr
- LTCG = 1.5 Cr − 1.0771 Cr = ₹42.29 L
- Tax = 20% × 42.29 L = ₹8.46 L
Here 12.5% wins by ~₹2.2 L. Short holding + high appreciation flips the decision.
Rule-of-thumb crossover
When sale price >> acquisition cost AND holding is short (< 8 years), 12.5% flat tends to win. When holding is long (15+ years) and appreciation is moderate (3-5x), indexation wins decisively.
Approximate crossover: 12.5% flat wins when (1 + appreciation) × 0.125 < (1 + appreciation − cii_growth) × 0.2, which simplifies roughly to: indexation wins if cii_growth > 0.375 × appreciation.
Plug the actual numbers into our Capital Gains Calculator — it runs both options side-by-side and highlights the lower tax automatically. No need to eye-ball the crossover.
When you MUST use the old rule (20% indexation)
- Non-residential property held pre-Jul-2024 — the choice applies.
- Commercial property — same rule; choice available if pre-Jul-2024.
- Inherited property — acquisition date and cost carry forward from the deceased owner. If the deceased acquired pre-Jul-2024, the heir gets the choice.
When you’re locked into the new rule (12.5% flat)
- Any property acquired on or after 23 July 2024.
- Allotments / bookings made before 23 Jul 2024 but registration after — contentious area. The date of payment made + allotment letter generally governs, but CBDT clarifications are evolving. If in doubt, ask a CA.
Offsetting losses + reinvestment exemptions
Regardless of which option you pick:
- Section 54 — reinvest LTCG in another residential property within 2 years (buy) or 3 years (build) for full exemption. Cap ₹10 Cr per transaction (Budget 2023).
- Section 54EC — invest up to ₹50 L in NHAI / REC bonds within 6 months of sale. 5-year lock-in; interest ~5-6%. Only meaningful for smaller gains.
- Section 54F — for non-residential property sale; reinvest entire sale consideration in residential property for full exemption (prorated if partial).
- Loss carry-forward — unabsorbed LTCL from any source offsets future LTCG for 8 years, provided ITR is filed by due date.
ITR reporting
Property sale mandates ITR-2 or ITR-3. Schedule CG has separate lines for:
- LTCG under 12.5% (post-Jul-2024 or chosen new rule)
- LTCG under 20% with indexation (chosen old rule)
- Section 54 / 54EC / 54F exemptions claimed
- TDS u/s 194-IA (1% TDS deducted by buyer for sales > ₹50L)
Practical pre-sale checklist
- Gather all acquisition-related documents: sale deed, registration charges, brokerage receipts, home-improvement bills.
- Compute CII-indexed cost using the exact FY of each capital outlay (acquisition + each improvement separately).
- Run both 12.5% and 20%-indexation scenarios in the Capital Gains Calculator. Pick the lower tax.
- Plan 54EC bonds / new-property purchase BEFORE signing the sale deed — exemption claims start from the sale date.
- Ensure the buyer deducts 1% TDS u/s 194-IA and deposits against your PAN. Check Form 26AS post-sale.
Run your own numbers
Our Capital Gains Calculator handles both rule options, CII indexation (2001-02 base), and Section 54EC bond exemption. Pair with the Income Tax Calculator if you have other-head income in the same year to compute total liability. For pre-purchase math (is this property worth buying?), see the rent vs buy post and the Home Loan Calculator.
Sources
- Finance Act 2024 — original “12.5% flat” amendment.
- Finance (No. 2) Act 2024 amendment — re-introduced taxpayer choice for pre-23-Jul-2024 properties.
- CBDT CII notifications — annual Cost Inflation Index.
- Sections 48, 49, 54, 54EC, 54F, 194-IA of the Income Tax Act 1961.