Capital Gains on Property Sale AY 2026-27: 12.5% or 20%?
The Finance Act 2024 changed how long-term capital gains on immovable property are taxed. If you sold property in FY 2025-26 and bought it before 23 July 2024, you can choose between 12.5% without indexation or 20% with indexation. The right option depends on your acquisition cost and holding period.
CA Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Legal basis: Section 112, Income-tax Act 1961, as amended by Finance Act 2024 — Effective: 23 July 2024. Source: https://www.pib.gov.in/PressReleasePage.aspx?PRID=2036604. Last reviewed by CA Harun Raaj: January 2026.
The Finance Act 2024 fundamentally changed how long-term capital gains-seller-tds-income-tax-act-2025) (LTCG) on immovable property are taxed. If you sold property in FY 2025-26 (assessed in AY 2026-27), the rate applied when you file your ITR-2 by 31 July 2026 — or ITR-3 by 31 August 2026 if you have business income — depends on when you acquired it.
If you owned the property before 23 July 2024, you have a choice: 12.5% without indexation or 20% with indexation. The right answer is determined entirely by which produces the lower tax on your specific gain.
What Changed on 23 July 2024
Before 23 July 2024, LTCG on immovable property was taxed at 20% with indexation. You could increase your cost of acquisition using the Cost Inflation Index (CII) to reduce the taxable gain.
From 23 July 2024 onwards, the statutory rate became 12.5% without indexation. However, for properties acquired before 23 July 2024, the government introduced a dual option: compute tax under both methods and pay whichever is lower.
Scope of the Dual Option
Key point: The choice between 12.5% and 20% exists only for properties you owned before 23 July 2024; you must compute both and use the lower result.
Cost Inflation Index for AY 2026-27
To compute 20%-with-indexation, you need the CII for your acquisition year and for FY 2025-26.
CII for FY 2025-26 (AY 2026-27): 376 (pending formal verification from incometaxindia.gov.in — confirm before finalising your computation)
Key historical CII values:
- FY 2001-02 (base year): 100
- FY 2004-05: 113
- FY 2010-11: 167
- FY 2015-16: 254
- FY 2019-20: 289
- FY 2024-25: 363
- FY 2025-26: 376
Formula: Indexed Cost of Acquisition = Actual Cost × (CII of Sale Year ÷ CII of Acquisition Year)
Two Worked Examples
These are illustrative only — your individual outcome depends on your actual acquisition cost, improvement expenditure, transfer expenses, holding period, and applicable exemptions.
Example 1: Old Property (FY 2004-05 Purchase)
Property acquired FY 2004-05 (CII: 113), sold FY 2025-26 for ₹5 crore, cost ₹30 lakhs:
For a very old, low-cost property: even though 12.5% applies to a larger base, the absolute tax is still lower.
Example 2: Recent Property (FY 2019-20 Purchase)
Property acquired FY 2019-20 (CII: 289), sold FY 2025-26 for ₹2 crore, cost ₹1.5 crore:
For a recent, high-cost property: indexation nearly eliminates the taxable gain, making 20% far more tax-efficient.
Five Critical Mistakes to Avoid
Mistake 1: Assuming 12.5% always wins. The lower rate applies to a larger base. For properties purchased before 2010, indexation can dramatically shrink the taxable gain — making 20% the better choice. Always compute both.
Mistake 2: Using the wrong CII base year. Always use the CII of the year you acquired the property as the denominator. If the property was inherited, use the CII of the year the original owner acquired it (or FY 2001-02 CII = 100, whichever applies later). Using the wrong year distorts the entire computation.
Mistake 3: Missing the ₹10 crore Section 54 cap. Finance Act 2023 capped the new residential house eligible for Section 54 exemption at ₹10 crore. If you reinvest proceeds exceeding ₹10 crore in a single new residential property, only the first ₹10 crore qualifies for exemption. The excess gain remains taxable. Consult your CA before assuming full reinvestment qualifies.
Mistake 4: Missing the CGAS deadline. If you have not reinvested capital gains in a new residential property by 31 July 2026 (the ITR-2 filing due date), you must deposit the unutilised amount in a Capital Gains Account Scheme (CGAS) bank account by that date to preserve your Section 54 or 54F exemption claim.
Mistake 5: Ignoring Section 54EC for non-residential property. If your property is commercial or non-residential, Section 54 (residential reinvestment) does not apply. Instead, you may invest up to ₹50 lakh per financial year in Section 54EC bonds (issued by REC, PFC, IRFC, or HUDCO; 5-year lock-in) within 6 months of the date of transfer to defer tax on the gain.
What to Discuss With Your CA
- Run the dual-option computation for your property: which rate produces the lower tax on your specific gain?
- Have all improvement expenditures been properly documented? Improvements reduce your cost base under both methods.
- Confirm your holding period meets the 24-month threshold for long-term treatment (Section 2(42A) ITA 1961).
- For commercial or non-residential property: which exemption applies — Section 54F (residential reinvestment) or Section 54EC (bonds)?
- For proceeds exceeding ₹5 crore: has Section 54GB (reinvestment in eligible startup equity within 6 months) been evaluated?
- Reconcile the property transaction in your AIS: stamp duty value, TDS deducted by the buyer, and sale consideration must all match.
- Clarify the status of Section 87A rebate on LTCG at special rates for AY 2026-27 — guidance is evolving; do not assume eligibility without current advice.
See Also
Frequently Asked Questions
I received the property as a gift from a relative. What is my acquisition cost for indexation purposes?+
Under Section 49(1) of the ITA 1961, when you receive immovable property as a gift from a relative, the cost to the previous owner becomes your cost. The CII base year is determined by the year the original owner acquired the property, and the holding period runs from that original acquisition date, not from when you inherited it.
Can I use different rate options for two properties I sold in the same financial year?+
Yes. The dual option (12.5% or 20%) is calculated independently for each property acquired before 23 July 2024. For each property, you compute tax under both methods and use whichever produces the lower LTCG tax.
My property was purchased before 23 July 2024, but I made significant improvements after that date. How does the dual option apply?+
The original acquisition cost qualifies for the dual option. Improvement costs incurred after 23 July 2024 are treated separately under the post-amendment rules. The exact treatment is still evolving — consult your CA to confirm the correct method for your specific improvement timeline and costs.
Is Section 87A rebate available on capital gains taxed at the 12.5% rate?+
Section 87A rebate eligibility for capital gains at special rates under the Finance Act 2024 amendments has not been definitively clarified by CBDT for AY 2026-27. Do not assume rebate eligibility without current professional advice specific to your assessment year.
I inherited the property in 2015, but the original owner bought it in 1995. Which CII do I use?+
You use the CII of the year the original owner acquired the property. Section 49(1) applies to inherited property from relatives — the cost and holding period run from the original acquisition date, not from when you inherited it.
What happens if I reinvest part of my gains in a new house and part in Section 54EC bonds?+
Section 54 (residential reinvestment) and Section 54EC (bonds) are separate exemptions and cannot both be claimed on the same gain. You elect one exemption per sale. Discuss your reinvestment strategy with your CA to determine which exemption is most tax-efficient for your circumstances.
I sold the property on 20 July 2024 and reinvested on 25 July 2024. Which rate applies?+
The rate is determined by the date of acquisition, not the date of sale. Since you acquired before 23 July 2024, you have the dual option. The reinvestment date is relevant only for Section 54 / 54EC timing compliance, not for LTCG rate selection.
How do I verify the Cost Inflation Index before I file my ITR?+
The official CII for each financial year is issued by the CBDT and published on incometaxindia.gov.in. The CII figure of 376 for FY 2025-26 is pending formal verification from the official source. Always download the official CII notification before finalising your computation.
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