The Budget 2024 Change: What Shifted
The Union Budget presented on July 23, 2024 was a watershed moment for property sellers. The finance minister changed the LTCG tax on immovable property:
| Pre-July 23, 2024 | Post-July 23, 2024 | |
|---|---|---|
| LTCG tax rate | 20% | 12.5% |
| Indexation | Available | Not available |
| Effective for | All qualifying transactions | New purchases from July 23, 2024 |
Grandfathering provision: For properties purchased before July 23, 2024, taxpayers can choose between:
- Option A: 12.5% tax WITHOUT indexation
- Option B: 20% tax WITH indexation
Pick whichever gives a lower tax liability.
Understanding Indexation (For Context)
Cost Inflation Index (CII): Published by the Income Tax department annually. Used to adjust the purchase price for inflation.
Formula (Old system): Indexed Cost of Acquisition = Purchase Price × (CII of sale year ÷ CII of purchase year)
LTCG = Sale Price - Indexed Cost - Indexed Improvement Costs
Key CII values:
| Year | CII |
|---|---|
| 2001–02 (base) | 100 |
| 2010–11 | 167 |
| 2015–16 | 254 |
| 2020–21 | 301 |
| 2024–25 | 363 |
| 2025–26 | ~375 (approx) |
Choosing Between Options: Worked Examples
Example 1: Pune Flat Bought 2013, Selling 2026
| Detail | Value |
|---|---|
| Purchase price (2013) | ₹35L |
| Sale price (2026) | ₹1.10 Cr |
| Holding period | 13 years → Long Term |
| CII 2013–14 | 220 |
| CII 2025–26 | ~375 |
Option A: 12.5% without indexation
- Gain = ₹1.10 Cr - ₹35L = ₹75L
- Tax = ₹75L × 12.5% = ₹9.38L
Option B: 20% with indexation
- Indexed cost = ₹35L × (375 ÷ 220) = ₹59.7L
- Gain = ₹1.10 Cr - ₹59.7L = ₹50.3L
- Tax = ₹50.3L × 20% = ₹10.06L
Winner: Option A (12.5%) — saves ₹68,000
Example 2: Flat Bought 2010, Selling 2026
| Detail | Value |
|---|---|
| Purchase price (2010) | ₹28L |
| Sale price (2026) | ₹95L |
| CII 2010–11 | 167 |
| CII 2025–26 | ~375 |
Option A: 12.5% without indexation
- Gain = ₹95L - ₹28L = ₹67L
- Tax = ₹67L × 12.5% = ₹8.38L
Option B: 20% with indexation
- Indexed cost = ₹28L × (375 ÷ 167) = ₹62.9L
- Gain = ₹95L - ₹62.9L = ₹32.1L
- Tax = ₹32.1L × 20% = ₹6.42L
Winner: Option B (20% with indexation) — saves ₹1.96L
Rule of thumb: The longer the holding period and the lower the absolute appreciation (value barely kept up with inflation), the more likely 20% with indexation wins.
Example 3: Hinjewadi Flat Bought 2020, Selling 2026
| Detail | Value |
|---|---|
| Purchase price (2020) | ₹80L |
| Sale price (2026) | ₹1.30 Cr |
| Holding | 6 years → Long Term |
| CII 2020–21 | 301 |
| CII 2025–26 | ~375 |
Option A: 12.5% without indexation
- Gain = ₹1.30 Cr - ₹80L = ₹50L
- Tax = ₹50L × 12.5% = ₹6.25L
Option B: 20% with indexation
- Indexed cost = ₹80L × (375 ÷ 301) = ₹99.7L
- Gain = ₹1.30 Cr - ₹99.7L = ₹30.3L
- Tax = ₹30.3L × 20% = ₹6.06L
Winner: Option B (20% with indexation) — barely, saves ₹19,000
Section 54: Reinvestment Exemption Still Works
Even under the new regime, reinvestment in another residential property can exempt your capital gains:
Section 54: Invest the LTCG amount (not the full sale price) in a new residential property within:
- 1 year before sale, or
- 2 years after sale, or
- 3 years after sale if constructing
Maximum exemption: Full LTCG amount can be exempted if fully reinvested.
Capital Gains Account Scheme (CGAS): If you can’t reinvest within the financial year of sale, deposit the gains in a CGAS bank account before ITR filing. This preserves the Section 54 benefit.
LTCG for Properties Purchased After July 23, 2024
No choice here — the law is clear:
- Rate: 12.5%
- No indexation
- No grandfathering
For buyers from 2024 onwards: the way to minimise LTCG on future sale is:
- Hold for 24+ months (Long Term threshold)
- Utilise Section 54 reinvestment
- Factor in acquisition cost improvements (renovation, capital improvements add to cost basis)
Calculating Your Actual Tax: What Reduces Taxable Gains
Purchase cost includes:
- Stamp duty paid at purchase
- Registration charges
- Brokerage paid
- Legal fees for property purchase
Improvement costs:
- Capital improvements (renovation, additional construction) — documented with receipts and completion certificate where possible
- Does NOT include routine maintenance
Example: ₹80L flat, ₹3L stamp duty, ₹2L brokerage, ₹5L renovation:
- Total cost basis = ₹80L + ₹3L + ₹2L + ₹5L = ₹90L
- Sale price ₹1.30 Cr
- LTCG (12.5% option) = ₹40L × 12.5% = ₹5L (vs ₹6.25L without cost additions)
Always document and include all acquisition costs.
FAQs
Q: Do I pay LTCG on the entire sale price? No — LTCG is on gains (sale price minus indexed or actual cost basis). You don’t pay tax on returning your own capital. Only the profit portion is taxed.
Q: What if my property is jointly owned? Each owner calculates LTCG on their proportionate share and files separately. If the property was 50-50, each owner declares 50% of the gain and can each claim Section 54 exemption on their share by reinvesting in a new property.
Q: How does surcharge affect my LTCG tax? LTCG on property: 12.5% base rate + 10% surcharge (if income exceeds ₹50L) + 4% health and education cess. Effective rates: up to ~14.95% for high-income sellers. For most salaried buyers selling one property: effective rate closer to 13%.
