Legal Reference
Section 112 (LTCG on property — 12.5% without indexation post-Budget 2024), Cost Inflation Index (CII), Section 55(2)(b) (cost of improvement), ITA 2025 | Grandfathering option for pre-July 23, 2024 property
1. Budget 2024 Change: Indexation Removed
Budget 2024 made a significant change to property capital gains taxation effective 23 July 2024:
- LTCG on property: Rate reduced from 20% to 12.5% — BUT indexation benefit removed
- STCG (held under 24 months): taxable at slab rates — no change
- Grandfathering: For properties purchased before 23 July 2024, taxpayers can CHOOSE between (a) 12.5% without indexation OR (b) 20% with indexation — whichever gives lower tax
2. Cost Inflation Index (CII)
CII adjusts the purchase cost for inflation — reducing the taxable capital gain. Base year 2001-02 = 100. CII for recent years:
| Financial Year | CII |
|---|
| 2001-02 | 100 |
| 2010-11 | 167 |
| 2015-16 | 254 |
| 2020-21 | 301 |
| 2023-24 | 348 |
| 2024-25 | 363 |
| 2025-26 | ~380 (provisional) |
3. Indexed Cost Computation
Indexed cost = Actual purchase price × (CII of sale year ÷ CII of purchase year)
Illustrative only. Property bought in 2010-11 for Rs 30 lakh. Sold in 2025-26 for Rs 90 lakh.
- Indexed cost = Rs 30L × (380/167) = Rs 68.26 lakh
- Capital gains with indexation = Rs 90L - Rs 68.26L = Rs 21.74L; tax at 20% = Rs 4.35L
- Capital gains without indexation = Rs 90L - Rs 30L = Rs 60L; tax at 12.5% = Rs 7.5L
- In this case, 20% WITH indexation is better (Rs 4.35L vs Rs 7.5L)
- For property bought before 23 July 2024: choose the lower option — 20% + indexation here
4. When 12.5% is Better than 20% + Indexation
The crossover point depends on how much the property has appreciated relative to inflation. If property has appreciated far faster than CII (e.g., prime urban property in metro cities), the 12.5% rate often becomes better. Properties held for very long periods (20+ years) typically benefit from indexation more. Properties bought after 23 July 2024 must use 12.5% without indexation — no choice.
5. Cost of Improvement
Major renovations and capital improvements to the property can be added to the cost of acquisition for capital gains computation. Only capital expenditure (not maintenance/repairs) qualifies. Keep receipts and invoices for all improvements. Improvement cost incurred before 1 April 2001 is ignored — improvements are deemed part of the base year cost.
6. Why TaxClue
Property capital gains computation — choosing between indexation and non-indexation, claiming improvement costs, and applying exemptions (Section 54, 54EC) — requires expert calculation. TaxClue maximises your tax saving on property sale. Contact us under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
What is the capital gains tax on property after Budget 2024?
Budget 2024 changed property LTCG: rate reduced to 12.5% but indexation (CII adjustment) removed. For properties purchased before 23 July 2024, a grandfathering option exists — taxpayers can choose between (a) 12.5% without indexation or (b) 20% with indexation — whichever gives a lower tax. For properties purchased on or after 23 July 2024, only the 12.5% without indexation option applies. STCG on property held under 24 months remains taxable at slab rate.
What is the Cost Inflation Index?
Cost Inflation Index (CII) is published by CBDT annually to adjust the purchase cost of assets for inflation. Base year 2001-02 has CII = 100. The indexed cost = actual purchase price × (CII of sale year ÷ CII of purchase year). Higher indexed cost means lower capital gains. For example, a property bought in 2010-11 (CII 167) and sold in 2025-26 (CII ~380) gets the cost multiplied by 380/167 = 2.28x before computing capital gains.
Should I choose 12.5% or 20% with indexation for my property sale?
Compare both options: compute capital gains with indexation and apply 20% tax; also compute without indexation and apply 12.5% tax. Choose whichever is lower. Generally, indexation is more beneficial for: properties bought a long time ago (20+ years) when inflation adjustment is large; properties in markets where appreciation has matched or lagged inflation. 12.5% is better for: recent purchases, properties in high-growth markets, or properties where the capital gain is small relative to sale price.
Can improvement costs reduce capital gains on property?
Yes. Major capital improvements (renovations, extensions, additions that enhance the asset) made after 1 April 2001 can be added to the cost of acquisition for capital gains computation. Maintenance, repairs, and painting are not capital improvements — only additions that materially improve the property. Keep invoices and receipts for all improvements. The improvement cost can also be indexed using CII for properties where indexation is being applied.
What is the holding period for LTCG on property?
For LTCG on immovable property (land and building), the holding period is 24 months under ITA 2025. Property held more than 24 months qualifies for LTCG treatment — at 12.5% (or 20% with indexation for pre-July 2024 property using grandfathering). Property held 24 months or less is STCG — taxable at slab rate. The holding period is calculated from the date of purchase/acquisition to the date of sale/transfer.
