Capital Gains Tax on Selling Property After the 2024 Budget: 12.5% Flat vs 20% With Indexation

Since 23 July 2024, long-term gains on property are taxed at 12.5% without indexation — but many sellers still have the right to pay 20% with indexation instead, if that's cheaper. Here's who gets the choice, how to work out which option wins, and how to cut the bill further with reinvestment exemptions. Updated for the Income-tax Act, 2025 and the FY 2026-27 Cost Inflation Index.

The Short Version

• Hold for more than 24 months and your gain on land or a building is long-term. Sell sooner and it's short-term, taxed at your income slab rate.
• Long-term gains are now taxed at 12.5% without indexation for transfers on or after 23 July 2024.
• Resident individuals and HUFs selling land or a building acquired before 23 July 2024 can compute tax both ways — 12.5% without indexation and 20% with indexation — and pay whichever is lower.
• Everyone else — property bought on or after 23 July 2024, and NRI sellers — pays 12.5% without indexation, with no choice.
• The Cost Inflation Index for FY 2026-27 is 384, up from 376 the year before. This is the figure you'll use to index cost for a sale made between 1 April 2026 and 31 March 2027.
• As a rule of thumb, indexation tends to win on older purchases with moderate appreciation; the flat 12.5% tends to win on recent purchases or properties that have appreciated sharply. The breakeven table below shows exactly where the line falls.
• Reinvestment exemptions still apply. Buying another house, or investing in specified bonds, can reduce or eliminate the tax altogether.
• The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. Section numbers have changed — Section 54 is now Section 82, 54EC is now 85, and 54F is now 86 — but the substance of these rules carried over.

What Changed in the 2024 Budget

Before the Union Budget of July 2024, long-term capital gains on property were taxed at 20% after indexation. Indexation adjusts your purchase price upward for inflation using the government's Cost Inflation Index (CII), so that you're taxed only on the "real" gain above inflation.

The July 2024 Budget changed this for transfers on or after 23 July 2024:

The removal of indexation drew strong criticism, particularly from owners of property held for decades, for whom inflation made up a large share of the apparent "gain." The government responded with an amendment that preserved the old method as an option for a specific group of sellers.

Who Gets the Choice — and Who Doesn't

The option to pay 20% with indexation is a grandfathering provision. It applies only if all of these are true:

1. You're a resident individual or a resident HUF. Companies, firms, and non-residents don't get the option.
2. The asset is land, a building, or both. It doesn't extend to gold, unlisted shares, or other assets.
3. The property was acquired before 23 July 2024.
4. The gain is long-term — you've held the property for more than 24 months.

If you qualify, you compute the tax under both methods and pay the lower amount.

All rates are before surcharge (where applicable) and the 4% health and education cess.

One important limitation

The grandfathering option lets you pay lower tax — it doesn't let you create a loss. If indexation would turn your gain into a loss on paper, you can't use that indexed loss to set off against other capital gains or carry it forward. The option simply caps your tax at the lower of the two computations.

How to Calculate Both Options

Option A: 12.5% without indexation

Gain = Sale price − Transfer expenses − Purchase cost − Cost of improvements Tax = Gain × 12.5% (plus cess, and surcharge if applicable)

Option B: 20% with indexation (only if you qualify)

Indexed cost = Purchase cost × (CII of year of sale ÷ CII of year of purchase) Gain = Sale price − Transfer expenses − Indexed purchase cost − Indexed cost of improvements Tax = Gain × 20% (plus cess, and surcharge if applicable)

Each improvement is indexed from the year in which it was made. Transfer expenses — brokerage and legal fees directly connected to the sale — are deducted under both methods.

Cost Inflation Index table

The FY 2026-27 figure of 384 was notified by the CBDT on 15 July 2026 under the Income-tax Act, 2025.

Property bought before 1 April 2001: you can use the property's fair market value as on 1 April 2001 as the cost (capped at its stamp duty value on that date), and index it from the base-year CII of 100. For older family property, this is often the single biggest lever in the calculation — get a registered valuer's report for the 2001 value.

Worked Examples (Sales in FY 2026-27)

These examples ignore transfer expenses, improvements, surcharge, and cess to keep the comparison clear.

Example 1: An older flat with moderate appreciation — indexation wins

A resident bought a flat in FY 2008-09 for ₹40 lakh and sells it in FY 2026-27 for ₹1.5 crore.

Indexation saves about ₹6.2 lakh. Seventeen years of inflation substantially raised the indexed cost.

Example 2: A recent flat with strong appreciation — the flat rate wins

A resident bought a flat in FY 2019-20 for ₹80 lakh and sells it in FY 2026-27 for ₹1.6 crore.

The flat 12.5% saves about ₹74,000. With a shorter holding period, indexation doesn't lift the cost enough to offset the higher rate.

Example 3: A plot in a high-growth corridor — the flat rate wins

A resident bought a plot in FY 2012-13 for ₹35 lakh and sells it in FY 2026-27 for ₹1.8 crore — more than five times the purchase price.

The flat 12.5% saves about ₹4.4 lakh. When appreciation far outpaces inflation — as it has in several Bengaluru growth corridors — the lower rate beats indexation even over a long holding period.

The Breakeven Rule: Which Option Wins for You?

You can work out which option is likely to be cheaper from just two numbers: the year you bought, and how many times your purchase price you're selling for.

The table below shows the breakeven multiple for a sale in FY 2026-27. If your sale price divided by your purchase price is below the breakeven multiple, 20% with indexation gives lower tax. If it's above, the flat 12.5% wins.

How to read it: A flat bought in 2015-16 for ₹60 lakh has a breakeven of 2.36×, or about ₹1.42 crore. Sell it for less than that and indexation is cheaper; sell for more and the flat 12.5% is cheaper.

The limits of the shortcut: This ignores improvement costs, transfer expenses, and exemptions, all of which shift the result. For properties bought before April 2001, use the 1 April 2001 fair market value as the "purchase price." Treat the table as a first screen, then run the full calculation — ideally with a chartered accountant — before you file.

Cutting the Tax Further: Reinvestment Exemptions

Choosing the right rate is only half the picture. Reinvestment exemptions can reduce the taxable gain — sometimes to zero. Under the Income-tax Act, 2025, these provisions have new section numbers, but the core conditions carried over from the 1961 Act.

Selling a house and buying another (Section 82, formerly 54)

• Available to individuals and HUFs selling a long-term residential house.
• Buy the new house within 1 year before or 2 years after the sale, or construct it within 3 years.
• The exemption is the lower of the capital gain and the amount reinvested, capped at ₹10 crore.
• A one-time option allows investment in two houses instead of one, if the capital gain doesn't exceed ₹2 crore.
• Selling the new house within 3 years can reverse the exemption.

Investing in capital gain bonds (Section 85, formerly 54EC)

• Available on long-term gains from land or a building.
• Invest within 6 months of the sale.
• Maximum investment of ₹50 lakh.
• Bonds carry a 5-year lock-in.
• Useful when you don't want to buy another property, or when the gain exceeds what you're reinvesting in a house.

Selling a plot or commercial property and buying a house (Section 86, formerly 54F)

• Available to individuals and HUFs selling a long-term asset other than a residential house.
• You must reinvest the net sale consideration (not just the gain) for a full exemption; partial reinvestment gives proportional relief.
• On the date of sale, you generally mustn't own more than one residential house other than the new one.
• Capped at ₹10 crore.

Capital Gains Account Scheme

If you haven't bought or built the new house by your return filing due date, deposit the unutilised amount in a Capital Gains Account Scheme account with an authorised bank before that date. This preserves the exemption while you complete the purchase or construction within the allowed window.

How exemptions interact with the 12.5% vs 20% choice

If you qualify for the grandfathering option, exemptions apply to each computation separately. Because the taxable gain differs between the two methods, the amount you need to reinvest to fully exempt the gain can also differ. Run both calculations including any planned reinvestment before deciding.

Special Situations

Inherited or gifted property

The cost to you is generally the previous owner's cost, and the previous owner's holding period counts toward your 24 months. How the acquisition date is treated for indexation purposes — and therefore whether the property counts as "acquired before 23 July 2024" — is an area where professional advice is worthwhile, particularly for older family property. Keep documentation of the original purchase and, for pre-2001 property, a valuation report.

Under-construction property

Holding period questions for flats bought under construction — whether it runs from allotment or from possession — have been the subject of differing interpretations. If you're selling an under-construction or recently delivered unit close to the 24-month mark, get the date analysis confirmed before you sell.

NRI sellers

NRIs are taxed at 12.5% without indexation on long-term gains, with no option to choose 20% with indexation. The buyer is required to deduct TDS on the capital gain at the time of payment. Because TDS is often computed on a higher base than the actual gain, NRI sellers can apply for a lower or nil deduction certificate before the sale, or claim a refund when filing their return.

TDS for resident sellers

When a resident sells property worth ₹50 lakh or more, the buyer deducts 1% TDS on the sale consideration. This is a credit against the seller's final tax liability, not an additional tax.

A Practical Checklist Before You Sell

1. Confirm the holding period. Has it been more than 24 months?
2. Check whether you qualify for the choice. Resident individual or HUF, land or building, acquired before 23 July 2024.
3. Gather your cost documents. Purchase deed, stamp duty and registration receipts, improvement bills (with years), and for pre-2001 property, a valuation as of 1 April 2001.
4. Run the breakeven screen using the table above.
5. Calculate both options in full, including improvements and transfer expenses.
6. Decide on reinvestment. A new house (Section 82 or 86), bonds (Section 85), or a combination — and note the deadlines.
7. If reinvestment won't be complete by the filing date, deposit the amount in a Capital Gains Account Scheme account.
8. Account for TDS — 1% for resident sellers; for NRIs, consider a lower deduction certificate.
9. Consult a chartered accountant for the final computation, especially for inherited property, large gains, or NRI sales.

Frequently Asked Questions

Q: Is long-term capital gains tax on property now 12.5% or 20%? For transfers on or after 23 July 2024, the default rate is 12.5% without indexation. Resident individuals and HUFs selling land or a building acquired before 23 July 2024 can instead pay 20% with indexation if that works out lower.

Q: Can I choose whichever is lower? Yes, if you qualify. You compute the tax under both methods and pay the lower amount. If you don't qualify — for example, you bought after 23 July 2024 or you're an NRI — only 12.5% without indexation applies.

Q: What is the Cost Inflation Index for FY 2026-27? 384, notified by the CBDT on 15 July 2026. The figure for FY 2025-26 was 376.

Q: I'm an NRI. Can I use indexation? No. The option to pay 20% with indexation is available only to resident individuals and HUFs. NRIs pay 12.5% without indexation on long-term gains from property.

Q: Did the new Income-tax Act, 2025 change these rates? The new Act, in force from 1 April 2026, renumbered the provisions but carried over the substance of the capital gains rules for property, including the 12.5% rate, the grandfathering option, and the reinvestment exemptions. Section 54 is now Section 82, Section 54EC is now Section 85, and Section 54F is now Section 86.

Q: Which option usually works better? It depends on when you bought and how much the property appreciated. Older purchases with moderate appreciation usually favour 20% with indexation; recent purchases, or properties that multiplied in value, usually favour 12.5% flat. Use the breakeven table as a first screen.

Q: Can indexation create a capital loss I can use elsewhere? No. The grandfathering option only lets you pay the lower of the two tax figures. An indexed loss can't be set off against other gains or carried forward.

Q: How much can I save by reinvesting in another house? Under Section 82 (formerly 54), the exemption is the lower of the capital gain and the amount reinvested in a new residential house, subject to a ₹10 crore cap. Timing conditions apply: purchase within 1 year before or 2 years after the sale, or construction within 3 years.

Final Word

The 2024 Budget didn't simply cut the rate on property gains — it created a choice for a large group of sellers, and choosing wrongly can cost lakhs. The pattern is consistent: the longer you've held the property and the more modest its appreciation, the more likely indexation wins; the more recent the purchase or the sharper the price rise, the more likely the flat 12.5% wins.

Before you sell, run both numbers, factor in improvements and reinvestment exemptions, and plan the timing of any reinvestment. For most sellers, that half-hour of arithmetic — ideally confirmed by a chartered accountant — is the highest-return work in the entire transaction.

This article is for general information only and reflects the law as understood in September 2026, including the Income-tax Act, 2025 and the Cost Inflation Index notified for FY 2026-27. It does not constitute tax or legal advice. Individual circumstances — inherited property, under-construction units, NRI status, surcharge thresholds, and exemption conditions — can materially change the outcome. Consult a qualified chartered accountant before filing.

Published by AnviRealty — Bengaluru's data-driven real estate advisory platform.