Long-Term Capital Gains (LTCG) arise when an individual sells or transfers certain capital assets after holding them for a prescribed period. The government clearly defines these holding periods to distinguish between short-term and long-term gains, and the taxation rules are reviewed and updated through the Union Budget every year.
For decades, the indexation benefit on capital gains tax has played a critical role in reducing the tax burden on long-term investors, especially in the real estate sector. However, Union Budget 2024 initially proposed a major shift in how LTCG is taxed—sparking widespread concern among taxpayers. Responding to these concerns, the government introduced a significant amendment through the Finance Act, 2024.
This article explains the LTCG indexation benefit latest update, how taxation worked earlier, what has changed now, and why this move is being seen as good news for real estate investors indexation benefit.
What Are Long-Term Capital Gains (LTCG)?
Long-Term Capital Gains refer to profits earned from the sale of capital assets held for a minimum specified period. For immovable property such as land or buildings, a holding period of more than 24 months qualifies the gains as long-term.
Assets commonly covered under LTCG include:
The taxation of LTCG is governed under the Income Tax Act, 1961, and the rules are modified through annual Finance Acts.
Also Read: Income Tax On Credit Card Transactions: How To Avoid A Tax Notice
How Were Long-Term Capital Gains Treated Before The Union Budget 2024?
Before the announcement of the Union Budget 2024, LTCG on property was taxed at 20% with indexation benefits. This framework allowed taxpayers to adjust the purchase cost of the asset for inflation, thereby reducing the taxable gains.
Understanding the Earlier LTCG Framework
Under the old regime:
This LTCG tax indexation benefit helped taxpayers account for rising prices over time and ensured that tax was levied only on real gains rather than inflationary gains.
Why Indexation Was Important
The property sale tax indexation benefit significantly reduced tax liability, especially for assets held over long periods. With rising inflation, property prices naturally increase, and indexation ensures fairness in taxation.
What Are The Changes In LTCG Treatment Under The Finance Act, 2024?
Finance Minister Nirmala Sitharaman announced that taxpayers would now be given the option to choose between either:
i) Paying 12.5 per cent tax without indexation benefit or
ii) Paying 20% tax with indexation benefits.
The taxpayers can compute and choose the option which allows them to pay less tax. This shall, however, only apply to properties bought or acquired before July 23, 2024, when the Union Budget 2024 was presented. The proposed amendment will also apply to unlisted equity transactions done before July 23, 2024.
Example: A bought a property on 12th March 2021 (before July 23, 2024). In the future, or present, in case he plans to sell it, he will have the option of choosing between the two available taxation choices.
This new change is expected to reduce the tax burden of taxpayers, drive investment and increase sales in the housing sector. Middle-class people will also greatly benefit from this since they will be able to choose better for themselves.
This amendment marks the indexation benefit on LTCG back for property, restoring flexibility for investors.
How Is Indexation Benefit Calculated?
The indexation benefit is calculated using the CIIs released by the CBDT everywhere. The formula to calculate is:
ICoA = Original cost of acquisition x (CII of the year of sale/CII of the year of purchase)
Example:
A person bought a property for Rs. 20,000 in June 2021. He sold it for Rs. 40,000 in May 2024. Calculate the indexation benefit to be received.
CII for 2021 was 317, and CII for 2024 is 363.
Hence, it will be solved as 20000x 363/317= 22,902.
The taxable amount will be Rs. 40000-Rs. 22,902= 17098.
The amount is subtracted from the sale amount along with other deductions if applicable, depending on the taxpayer.
This selective applicability makes the real estate capital gains tax indexation especially relevant for long-term holders.
Also Read: 20 Easy Ways to Save Income Tax In 2025
Why This Amendment Is Good News for Taxpayers?
The amendment has been widely welcomed and is seen as good news for real estate investors' indexation benefit, for several reasons.
Relief for Middle-Class Homeowners
Middle-class families selling ancestral or long-held properties benefit greatly, as inflation-adjusted costs significantly reduce taxable gains.
Boost for Real Estate Market
The return of the property sale tax indexation benefit is expected to:
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Encourage property transactions.
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Increase housing market liquidity.
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Improve investor confidence.
Fairer Taxation
The amendment ensures that tax is levied on real income gains, not inflation-driven price increases, strengthening trust in the tax system.
Strategic Tax Planning Under the New LTCG Rules
Taxpayers should now adopt a more analytical approach while planning property sales.
Key Planning Considerations
Before selling property, taxpayers should:
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Calculate LTCG under both options.
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Factor in the holding period and inflation.
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Consider exemptions under Sections 54, 54EC, etc.
Professional advice can help maximise benefits under the LTCG tax indexation benefit framework.
Impact Of LTCG Changes On Different Asset Classes
While most discussions focus on property, the LTCG indexation benefit latest update also affects other capital assets. Understanding this broader impact helps taxpayers plan holistically.
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Unlisted Equity Shares: Transactions completed before 23 July 2024 also qualify for the optional indexation framework.
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Land Sales: Long-held land parcels benefit significantly due to higher inflation-adjusted costs.
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Debt Instruments: Certain legacy investments may still see indexation relevance depending on acquisition dates.
This selective applicability ensures that the indexation benefit on capital gains tax continues to reward genuine long-term investing across asset classes.
LTCG Tax With And Without Indexation
To truly understand how indexation works in practice, taxpayers should compare both options side by side. This comparison highlights how indexation benefit reduces LTCG tax in high-inflation scenarios.
| Particulars | 12.5% Without Indexation | 20% With Indexation |
|---|
| Inflation Adjustment | Not Allowed | Allowed |
| Suitable For | Shorter holding periods | Long-term holdings |
| Tax Predictability | High | Depends on CII |
| Ideal For | Lower inflation gains | High inflation gains |
This comparison makes it easier to decide whether the LTCG tax indexation benefit is advantageous in a specific case.
Also Read: 6 WaysTo Reduce Senior Citizens Capital Gains Tax During ITR Filing
Who Should Opt For The Indexation Benefit On Property Sale?
Not every taxpayer will benefit equally from indexation. Knowing who gains the most helps in better decision-making.
Indexation is especially beneficial for:
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Property held for more than 8–10 years.
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Assets purchased during low-price, high-inflation periods.
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Inherited or ancestral properties.
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Investors aiming to minimise real estate capital gains tax indexation.
For such cases, the indexation benefit on property sale explained becomes a powerful tax-saving tool.
Role Of Cost Inflation Index (CII) In LTCG Taxation
The Cost Inflation Index (CII), notified annually by CBDT, forms the backbone of indexation calculations. It reflects year-on-year inflation and ensures fairness.
Why CII matters:
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Protects taxpayers from inflation erosion.
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Aligns taxable gains with real purchasing power.
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Strengthens the logic of indexation benefit on LTCG back for property.
Any major rise in CII significantly enhances the effectiveness of indexation for long-term assets.
Conclusion
The Finance Act 2024 amendment has brought much-needed relief to taxpayers affected by the initial LTCG changes proposed in the Union Budget 2024. By allowing taxpayers to choose between a lower tax rate and the traditional long-term capital gains indexation benefit, the government has restored balance and fairness.
This LTCG indexation benefit's latest update empowers taxpayers to make informed financial decisions and reduces anxiety around property sales. For real estate investors and middle-class homeowners alike, this change reaffirms that long-term investments will continue to receive reasonable tax treatment.
To ensure accurate compliance, consult your Chartered Accountant or visit your nearest Income Tax office. You may also contact the official helpline numbers 1800 103 0025 or 1800 419 0025.
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