Property Capital Gains: Indexation vs 12.5% Tax in 2026

Legal basis: Section 112, Income-tax Act 1961, as amended by Finance Act 2024 — Effective: 23 July 2024. Source: CBDT Notification No. 85/2026, S.O. 3889(E), dated 15 July 2026. Last reviewed by CA Harun Raaj: December 2026.

If you sold—or are planning to sell—a property) in India in FY 2026-27, you face a choice that did not exist two years ago: compute your capital gains tax under the old 20% rate with indexation, or the new 12.5% rate without indexation. The difference can run into lakhs on a ₹2 crore+ sale.

The CBDT has now notified the Cost Inflation Index (CII) for FY 2026-27 at 384. That notification is the signal to run the numbers before assuming one route is automatically better.

What the Law Says

The Finance Act 2024 amendment changed the long-term capital gains (LTCG) tax treatment for most assets transferred on or after 23 July 2024:

• New default rate: 12.5% LTCG without indexation benefit
• Old rate preserved: 20% LTCG with indexation for a specific class

However, for land or buildings, a grandfathering clause applies: resident individuals and HUFs who hold a land or building that was acquired before 23 July 2024 may compute capital gains under both regimes and pay the lower of the two taxes.

This dual-option relief does not apply to:

• Non-residents (NRIs pay 12.5% without indexation for property sold in India)


• Companies and firms


• Assets other than land or building (equity, gold, debt funds)

The Cost Inflation Index: What 384 Means

The CII is the government-notified index measuring cumulative inflation since the base year FY 2001-02 (CII = 100). For a property acquired in FY 2001-02, the indexed cost of acquisition in FY 2026-27 is:

Indexed cost = Original cost × (CII of year of sale ÷ CII of year of acquisition)

For a property acquired in FY 2001-02:

• Indexed cost = Original cost × (384 ÷ 100) = 3.84× the original cost

For a property acquired in a later year, use the CII for that acquisition year as the denominator.

CII values for all past years are available on the official income tax portal at incometaxindia.gov.in.

Key point: The dual-option applies only to land or buildings acquired before 23 July 2024 held by resident individuals and HUFs; you must calculate both regimes and declare the lower tax in your ITR.

How to Compare: A Worked Example

Illustrative Example — not advice. Individual circumstances vary significantly.

Assuming a commercial property in Hyderabad acquired in FY 2010-11 for ₹80 lakh (CII for FY 2010-11 = 167), sold in FY 2026-27 for ₹3.5 crore. The property was acquired before 23 July 2024, and the sellers are resident individuals.

Option 1 — Old Regime: 20% with Indexation

• Indexed cost of acquisition = ₹80 lakh × (384 ÷ 167) = ₹183.9 lakh


• LTCG = ₹350 lakh − ₹183.9 lakh = ₹166.1 lakh


• Tax @ 20% = ₹33.2 lakh

Option 2 — New Regime: 12.5% without Indexation

• LTCG = ₹350 lakh − ₹80 lakh = ₹270 lakh


• Tax @ 12.5% = ₹33.75 lakh

In this example, Option 1 (with indexation) saves ₹55,000. The comparison must be run for every specific transaction.

Key driver: If your indexed cost is high relative to sale value (asset purchased at high price, inflation modest, or shorter holding period), the new 12.5% rate may produce lower tax. If purchased at low cost and held for decades, indexation typically wins.

For FY 2025-26 Property Sellers

If you sold a property in FY 2025-26 and have not yet filed your ITR, use CII 376 (FY 2025-26) for the same dual-option comparison, not CII 384 which applies to FY 2026-27 sales.

For FY 2025-26 sales claiming reinvestment exemptions under Section 54 or Section 54F, the Capital Gains Account Scheme (CGAS) deposit is typically required before the ITR due date. If you reinvest capital gains before filing your return, you may be entitled to the exemption even if the CGAS deposit was not made—consult your CA regarding your specific facts.

Common Mistakes HNIs Make

• Assuming indexation is always better: It depends entirely on the original purchase price relative to the sale price, and the specific CII values for acquisition and sale years.
• Applying the dual-option to other assets: Equity shares, gold, and debt funds do not have this relief. They are taxed at 12.5% without indexation.
• Forgetting that NRIs do not get the dual-option: Non-residents pay 12.5% without indexation on LTCG from property in India.
• Not factoring in surcharge and cess: The headline rate is 20% or 12.5%, but with surcharge (up to 15% for high incomes) and 4% health and education cess, the effective rate is higher.
• Missing the Section 54EC bond window: If you have LTCG from property sale, you may invest up to ₹50 lakh in capital gains bonds within 6 months of the transfer date to shelter the gain from tax.

Planning Points to Discuss with Your CA

• Section 54 exemption: Selling a residential house and reinvesting the entire capital gain in another residential house may exempt the gain. The purchase cap is ₹10 crore. Available to individuals and HUFs.
• Section 54F exemption: Selling a non-residential asset and investing the entire net sale consideration in a residential house may proportionately exempt the gain.
• Section 54EC bonds: Up to ₹50 lakh LTCG from land or building may be sheltered by investing in capital gains bonds within 6 months of sale.
• Capital Gains Account Scheme (CGAS): If reinvestment is not yet possible, deposit the amount in a CGAS account before your ITR due date to preserve the exemption claim.
• HUF property: If the property is HUF property, the dual-option applies to the HUF as an assessee.

I'm CA Harun Raaj, Visakhapatnam. If you've sold or are planning to sell property in FY 2026-27 and need help comparing the two regimes for your specific facts, reach out.

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See Also

• Section 54 Spouse Reinvestment: ITAT Ruling & Benami Risk
• 12.5% vs 20% Capital Gains Tax: Resident Property Sellers' Choice in 2026
• Section 148A Reassessment: Time Limits & Valid Notice Rules

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