Indexation Removed in 2024: 12.5% Without Indexation vs 20% With — Which Is Lower for Your Property Sale?
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Short answer: For land or building sold after 23 July 2024, long-term capital gains are normally taxed at 12.5% without indexation. If you are a resident individual or HUF and acquired the property before 23-07-2024, you may choose the lower of 12.5% on actual cost (no indexation) or 20% on indexed cost — whichever yields less tax. The winner depends on how much your indexed cost exceeds your actual purchase price; use our calculator with your own CII figures rather than guessing.
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What Changed on 23 July 2024
The Finance (No. 2) Act 2024 restructured capital gains taxation for assets transferred on or after 23 July 2024 (the cutover date in current tax configuration). For land and building, the post-cutover rules are:
Section 48 governs computation of capital gains. The amended structure means that for most sellers, gain is simply sale consideration minus cost of acquisition — with no uplift from the Cost Inflation Index (CII).
This is a material shift from the pre-cutover world, where long-term property gains were typically taxed at 20% with indexation under the old Section 48 framework.
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The Grandfather Rule — Exact Eligibility
The tax configuration states the grandfather option exactly as follows:
For land/building acquired before 23-07-2024 by resident individuals/HUF: lower of 12.5% without indexation OR 20% with indexation
Break that down:
- Asset type: Land or building only (not equity mutual funds, not debt mutual funds under Section 50AA).
- Acquisition date: You must have acquired the property before 23 July 2024. Properties bought on or after that date get the flat 12.5% without-indexation path — no choice.
- Who qualifies: Resident individuals and HUFs only. Companies, firms, and non-residents do not get this lower-of comparison under the configured rule.
- The comparison: Compute tax under both methods and pay whichever is lower:
You do not pick one regime upfront and hope it works. You run both legs and take the minimum. That is the entire logic of the grandfather provision.
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How Each Leg Is Computed
Leg A — 12.5% without indexation
Gain (Leg A) = Full value of consideration − Cost of acquisition (actual, unindexed)
Tax (Leg A) = Gain (Leg A) × 12.5%
No CII multiplication. Your purchase price (plus eligible improvement costs and certain transaction costs, as applicable under Section 48) is the cost base.
Leg B — 20% with indexation
Indexed cost = Actual cost × (CII of year of sale ÷ CII of year of acquisition)
Gain (Leg B) = Full value of consideration − Indexed cost
Tax (Leg B) = Gain (Leg B) × 20%
CII table verification belongs to the calculator — we do not embed or invent CII values in this article. The official Cost Inflation Index is notified annually by the CBDT; your acquisition year and sale year determine the ratio. Plug your numbers into the Capital Gains Calculator 2025 to get the correct indexed cost.
Which leg wins?
- Leg B (20% indexed) tends to win when you bought long ago at a low price and inflation has significantly inflated the indexed cost — shrinking the taxable gain.
- Leg A (12.5% unindexed) tends to win when the purchase was relatively recent (small indexation benefit) or when the absolute gain is modest, because 12.5% on a larger base can still beat 20% on a smaller one.
The crossover point is property-specific. There is no universal rule like "always pick indexation."
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Worked Example — Both Legs Computed
Assume a resident individual who acquired a flat in 2010 (before 23-07-2024) and sold it in FY 2025-26 (after the cutover date). Holding exceeds 24 months, so the gain is long-term.
We deliberately do not state CII values here. Your indexed cost depends on the notified CII for 2010 (acquisition year) and the CII for the year of sale. The calculator applies the official table.
Leg A — 12.5% without indexation
Gain (Leg A) = ₹1,00,00,000 − ₹40,00,000 = ₹60,00,000
Tax (Leg A) = ₹60,00,000 × 12.5% = ₹7,50,000
Leg B — 20% with indexation
Suppose your calculator (with verified CII figures) returns an indexed cost of ₹72,00,000:
Gain (Leg B) = ₹1,00,00,000 − ₹72,00,000 = ₹28,00,000
Tax (Leg B) = ₹28,00,000 × 20% = ₹5,60,000
In this scenario, Leg B is lower — you pay ₹5,60,000 instead of ₹7,50,000.
Now suppose the same sale but the calculator returns an indexed cost of ₹55,00,000 (e.g., a shorter holding period or different CII years):
Gain (Leg B) = ₹1,00,00,000 − ₹55,00,000 = ₹45,00,000
Tax (Leg B) = ₹45,00,000 × 20% = ₹9,00,000
Here Leg A wins at ₹7,50,000 versus ₹9,00,000.
Action: Run both legs with your real numbers in the Capital Gains Calculator 2025. Do not rely on illustrative indexed costs from articles.
Cess
Both legs attract health and education cess at 4% on the tax computed above (cess rate per FY 2025-26 configuration). Surcharge applies only if total income crosses the configured thresholds (10% above ₹50 lakh, 15% above ₹1 crore, and higher slabs for very large incomes).
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Comparison Table — Property LTCG After 23 July 2024
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Equity Mutual Funds — Never Indexed
This grandfather comparison applies to land and building. It does not apply to listed equity or equity-oriented mutual funds.
For equity listed (STT-paid) instruments, indexation is never available — both pre- and post-cutover configurations set indexation: false. Post-cutover rates (transfer on or after 23-07-2024): LTCG at 12.5% with exemption up to ₹1,25,000 per year; STCG at 20%. Pre-cutover: LTCG 10% with ₹1 lakh exemption; STCG 15%. Holding period for long-term treatment: 12 months.
Do not apply property indexation logic to equity MF redemptions. Separate computation, separate rates.
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Debt Mutual Funds — Section 50AA Exception
Specified debt mutual funds acquired on or after 1 April 2023 are treated as deemed short-term capital gains at slab rate under Section 50AA — no LTCG benefit regardless of holding period.
This is a distinct track from both property LTCG and equity LTCG. If you hold specified debt MFs, the 12.5% vs 20% property debate is irrelevant; gains are taxed at your marginal income-tax rate.
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Practical Checklist Before You Sell
- Confirm acquisition date — before or after 23-07-2024 determines whether the grandfather lower-of option exists.
- Confirm holding period — 24 months for land/building LTCG; shorter holding = slab-rate STCG.
- Confirm residential status — grandfather option is for resident individuals and HUFs.
- Gather actual cost — purchase deed, registration charges, eligible improvements.
- Run both legs in the calculator — do not assume indexation always wins.
- Account for exemptions — Section 54 (reinvestment in residential house), Section 54F, and other provisions may reduce taxable gain independently of the rate choice.
- TDS on sale — Section 194-IA requires 1% TDS on property sales above ₹50 lakh (buyer deducts); this is separate from your final tax computation.
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How This Fits the Income Tax Act 2025 Transition
India is transitioning from the Income-tax Act, 1961 to the Income Tax Act, 2025. Capital gains provisions (Sections 48, 111A, 112A, and related amendments from Finance (No. 2) Act 2024) remain the operative framework for FY 2025-26. For a section-by-section mapping of old Act references to the 2025 Act, see our ITA 2025 transition guide.
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FAQ
1. Is indexation completely removed for all property sales in 2024?
For transfers on or after 23 July 2024, the default rule is 12.5% LTCG without indexation. Indexation is not "completely removed" for everyone — resident individuals and HUFs who acquired land/building before 23-07-2024 retain a lower-of comparison: 12.5% without indexation versus 20% with indexation.
2. I bought property in January 2024. Can I use indexation?
If acquisition was before 23 July 2024 and you are a resident individual or HUF, yes — you may compute under the grandfather lower-of rule. If you acquired on or after 23 July 2024, only the 12.5% without indexation path applies.
3. Does the grandfather rule apply to commercial property?
The configured rule specifies land/building without restricting residential versus commercial. Eligibility hinges on asset type (land/building), acquisition date, and taxpayer category — not on whether the property is residential or commercial. Confirm specifics with your tax advisor for edge cases (e.g., land with development rights).
4. Can a company or partnership firm use the 20% indexed option?
The configured grandfather rule names resident individuals and HUFs only. Corporate and firm sellers should assume the 12.5% without indexation default unless separate provisions apply to their case.
5. How do I get the indexed cost without guessing CII numbers?
Use the Capital Gains Calculator 2025. It applies the notified CII table for your acquisition and sale years. This article intentionally does not state CII values — they must come from official notifications, not from web articles.
6. What about debt mutual funds I held for five years?
If they are specified debt MFs acquired on or after 1 April 2023, Section 50AA treats gains as deemed STCG at slab rate — no LTCG, no indexation, no 12.5% rate. This is unrelated to the property grandfather rule.
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Last Verified
Disclaimer: This article is for general information. Tax outcomes depend on your specific facts, residential status, and applicable exemptions. Consult a qualified chartered accountant before filing. Rates and rules are auto-synced from our tax configuration file; verify against the Finance Act and CBDT notifications before relying on them for compliance.
Tools: Capital Gains Calculator 2025 · ITA 2025 Transition Guide
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