Budget 2024 changed the tax on long-term capital gains from sale of immovable property. The new rate is 12.5% without indexation, replacing the earlier 20% with indexation. But taxpayers who purchased property before July 23, 2024 can choose between the two methods. Here's how to decide.
What Changed in Budget 2024
With effect from July 23, 2024: New sales of property will attract 12.5% LTCG tax without indexation benefit. For properties purchased before July 23, 2024, the taxpayer has a one-time option to choose between: (a) 12.5% without indexation, or (b) 20% with indexation — whichever is lower.
Understanding Indexation
Indexation adjusts the cost of purchase for inflation using the Cost Inflation Index (CII) published by the income tax department. A property bought for ₹50 lakh in 2010 would have an indexed cost of approximately ₹1.12 crore today (using CII 2010 = 167, 2024 = 363). The gain is then calculated on the difference between sale price and indexed cost.
When is 12.5% (No Indexation) Better?
If the property has appreciated significantly and the sale price is much higher than even the indexed cost, the 12.5% rate without indexation will result in lower tax. Example: Property bought for ₹30 lakh in 2012, sold for ₹2 crore in 2024. Indexed cost: ~₹75 lakh. Tax @ 20% on ₹1.25 crore gain = ₹25 lakh. Tax @ 12.5% on ₹1.70 crore gain = ₹21.25 lakh. New rate wins here.
When is 20% With Indexation Better?
If the property has not appreciated much compared to inflation, indexation significantly reduces your taxable gain. Example: Property bought for ₹80 lakh in 2015, sold for ₹1.20 crore in 2024. Indexed cost: ~₹1.10 crore. Tax @ 20% on ₹10 lakh = ₹2 lakh. Tax @ 12.5% on ₹40 lakh = ₹5 lakh. Old rate with indexation wins clearly.
The Breakeven Point
As a rule of thumb: if your property has appreciated more than 2.5x the indexed cost, the new 12.5% rate is likely better. If appreciation is moderate (1.2x to 1.8x of purchase price), indexation usually wins. The exact calculation depends on the year of purchase and CII values.
Our Recommendation
Never make a property sale decision without running both calculations. The difference can be lakhs of rupees in tax. Our tax team can run a detailed LTCG analysis for your specific property, considering the year of purchase, improvement costs, brokerage, and registration charges. Reach out to us before signing the sale agreement.
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Our Direct Tax practice at Shahi & Co. assists businesses across New Delhi and Pan-India.