Homeowners selling properties in the financial year 2025-26 will need to consider two options for calculating long-term capital gains (LTCG) tax. According to a post by financial advisor Dev Patel on X, eligible resident individuals and Hindu Undivided Families (HUFs) can choose between a 20% tax rate with indexation or a flat 12.5% rate without indexation.
Key Details
Patel illustrated the difference using an example of a property purchased in FY 2017-18 for ₹10 lakh and sold in FY 2025-26 for ₹28 lakh. With indexation, the purchase price is adjusted for inflation, raising the cost of acquisition to ₹13.82 lakh, which results in a taxable gain of ₹14.18 lakh and a tax liability of ₹2.83 lakh. In contrast, without indexation, the taxable gain remains ₹18 lakh, leading to a lower tax liability of ₹2.25 lakh under the flat rate. Patel stated,
The worse option is ₹58,529 cheaper,
emphasizing that the flat rate may be more beneficial for properties that have appreciated significantly.
He noted that indexation only provides a tax advantage when the property’s value barely keeps pace with inflation. The Cost Inflation Index (CII) rose by 38% over the eight years in question, averaging about 4% per year. Patel advised that for properties sold below a break-even point of ₹20.2 lakh, indexation would be the better option.
Background
The indexation benefit is available only for properties acquired before July 23, 2024, and sold during the specified financial year, which could affect many homeowners' tax strategies moving forward.
This development may influence the real estate market as homeowners assess their tax liabilities when selling properties, potentially affecting property sales volumes. Investors will watch for upcoming tax policy changes that could further impact capital gains taxation strategies.