How the new LTCG tax changes might shift property investment trends

Budget 2024 changed the LTCG tax on property from 20% with indexation to 12.5% without. For pre-July 2024 purchases, sellers can choose whichever is lower. For NRIs, the indexation option does not apply — the effective rate is approximately 14.95%.

The Budget 2024 changes to long-term capital gains tax on property were significant — and the implications are different depending on when you purchased and whether you are a resident or NRI.

What changed: the LTCG tax rate on property was reduced from 20% to 12.5%, but indexation benefits were simultaneously removed. For properties purchased before July 23, 2024, an important relief was subsequently announced: sellers can choose between the new 12.5% rate without indexation, or the old 20% rate with indexation — whichever results in a lower tax liability. Properties purchased on or after July 23, 2024 are governed by the flat 12.5% rate only.

There is, however, a critical distinction for NRIs. The indexation benefit restoration applies only to resident individuals and HUFs. NRIs selling property — regardless of when it was purchased — are subject to the 12.5% rate without indexation. Additionally, surcharge applies, and when you account for the surcharge cap of 15% and 4% cess, the effective rate for NRIs on LTCG from property is approximately 14.95%.

The practical implication for sellers considering their options: for a property held for a long time with a low original purchase price, the old 20% with indexation may still result in a lower absolute tax than 12.5% without indexation. For a property purchased more recently, or one where the market appreciation has far outpaced inflation, the 12.5% rate is likely the better option. The calculation requires running both scenarios.

For buyers, the LTCG changes do not directly affect the acquisition decision. They are relevant at the time of eventual sale. The more significant consideration at purchase remains stamp duty and registration, which at 5–7% of transaction value represent a meaningful upfront cost that needs to be factored into the investment calculation from the outset.

This area of tax law is complex and individual circumstances vary. Always consult a qualified chartered accountant before making decisions based on capital gains implications.

Grey Beard Real Estate

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