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Nirmala Sitharaman in Budget 2024-25 cuts LTCG tax on property sales to 12.5 percent but removes indexation, impacting sellers differently based on purchase year and cost.
Explained: Property LTCG Tax in FY2025-26 — 12.5% Without Indexation or 20% With It.
Property LTCG Tax: In one of the major decisions, Finance Minister Nirmala Sitharaman in the Budget 2024-25 proposed to reduce the long-term capital gains (LTCG) tax on property sales from 20 per cent to 12.5 per cent. However, the indexation benefit for inflation is also removed.
According to the Memorandum to the Union Budget, “Simultaneously with the rationalisation of rate to 12.5 per cent, indexation available under the second proviso to section 48 is proposed to be removed for the calculation of any long-term capital gains which is presently available for property, gold, and other unlisted assets. This will ease the computation of capital gains for the taxpayer and the tax administration.”
Although the benefit of indexation has been withdrawn, it continues to be available in a limited way for land and building transactions. If a resident individual or resident HUF sells land or a building acquired earlier, on or after 23rd July 2024, they can choose to pay tax on the long-term capital gains at the lower of the two: 12.5% on the unindexed gains or 20% on the indexed gains, for FY2024-26.
Nevertheless, this benefit is available only for taxation computation purpose not for other purposes like exemptions of investment in property.
Earlier, the holding period rules for long-term capital assets varied: more than one year for listed shares and equity mutual funds, two years for unlisted shares and land/building, and three years for other assets. After the July 2024 Budget amendment, the three-year rule has been reduced to two years, so now there are only two conditions—assets held for more than one year, and assets held for more than two years.
Understand LTCG Tax With Three Scenarios For Property Sold In FY2025-26
Case 1: Property bought long ago (2005) at low price
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Purchase price (2005): Rs 20 lakh
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Sale price (2025): Rs 1 crore
Without indexation (12.5% tax):
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LTCG = 1,00,00,000 – 20,00,000 = Rs 80 lakh
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Tax @12.5% = Rs 10 lakh
With indexation (20% tax):
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Indexed cost = 20,00,000 × (CII 2025 ÷ CII 2005) ≈ 20,00,000 × (363 ÷ 117) = ~Rs 62 lakh
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LTCG = 1,00,00,000 – 62,00,000 = Rs 38 lakh
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Tax @20% = Rs 7.6 lakh
Better to choose 20% with indexation here, since property was bought long ago at a low price.
Case 2: Property bought recently (2019)
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Purchase price (2019): Rs 80 lakh
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Sale price (2025): Rs 1 crore
Without indexation (12.5% tax):
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LTCG = 1,00,00,000 – 80,00,000 = Rs 20 lakh
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Tax @12.5% = Rs 2.5 lakh
With indexation (20% tax):
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Indexed cost = 80,00,000 × (363 ÷ 289) = ~Rs 1 crore (almost equal to sale price)
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LTCG = negligible (~Rs 0)
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Tax @20% = ~Nil
Indexation almost wipes out gains, but since the sale price and indexed cost are close, this route can reduce tax liability significantly.
Case 3: Property bought at higher price recently (2020)
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Purchase price (2020): Rs 90 lakh
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Sale price (2025): Rs 1 crore
Without indexation (12.5% tax):
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LTCG = Rs 10 lakh
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Tax @12.5% = Rs 1.25 lakh
With indexation (20% tax):
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Indexed cost = 90,00,000 × (363 ÷ 301) ≈ Rs 1.08 crore
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LTCG = Nil (actually a loss)
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Tax = Nil
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
September 25, 2025, 12:47 IST
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