Sold property for Rs 43.5 lakh: Which allows lower tax outgo, LTCG with or without indexation?

TIMESOFINDIA.COM / Mar 6, 2025, 15:44 IST

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Finance Minister Nirmala Sitharaman's modification of LTCG tax regulations allows taxpayers to choose between a 20% tax with indexation or a 12.5% tax without indexation. This gives property owners the flexibility to select the option resulting in lower taxation, as demonstrated by the recent example from ET Wealth.

Sold property for Rs 43.5 lakh: Which allows lower tax outgo, LTCG with or without indexation?

For individuals who purchased property before July 23, 2024, there will be flexibility to select between the revised regulation (12.5% LTCG tax without indexation) and the existing regulation (20% LTCG tax with indexation). (AI image)

Last year, Finance Minister Nirmala Sitharaman provided significant relief to homeowners by modifying the long-term capital gains (LTCG) tax regulations for property outlined in Budget 2024. Initially, the budget proposed reducing LTCG tax from 20% to 12.5% whilst eliminating indexation benefits.
This change would have adversely affected homeowners, as indexation permits taxpayers to account for inflation when calculating capital gains, thereby reducing their tax burden.
For individuals who purchased property before July 23, 2024, there will be flexibility to select between the revised regulation (12.5% LTCG tax without indexation) and the existing regulation (20% LTCG tax with indexation), allowing them to opt for whichever results in lower taxation.
Property owners will now have two distinct choices when selling their properties, enabling them to select the option that minimises their tax obligation:

1) Compute the tax on long-term capital gains on the sale of immovable property at 20% after factoring indexation benefit.
2) Compute the tax on long-term capital gains on the sale of immovable property at 12.5% without factoring indexation benefit.
In this context a recent query in ET Wealth was: A property purchased in Thiruvananthapuram during 1991 for Rs 3.75 lakh, inclusive of registration and interior work expenses, was sold for Rs 43.5 lakh this year. The query sought guidance regarding capital gains taxation, particularly concerning indexation benefits applicable to pre-2001 real estate transactions, along with applicable tax rates of 20% or 12.5%.
The response from Sudhir Kaushik, Co-founder & CEO of TaxSpanner, indicated two taxation scenarios. With indexation, the tax liability equals Rs 5,97,750 lakh. However, choosing the alternative method without indexation results in a lower tax amount of Rs 4,96,875. The analysis concludes that selecting the new capital gain tax rate of 12.5% without indexation proves more advantageous, offering savings of Rs 1,00,875.

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