Property taxation explained: a story about indexation and LTCG

Indexation has been restored — but only for resident individuals and HUFs, only for land and buildings, and only for pre-July 23, 2024 purchases. For NRIs, firms, and companies, the old benefit does not apply. A dialogue that unpacks the many ifs and buts.

Understanding indexation: a conversation

Mousi to Jai: Beta, I have received this WhatsApp message saying that they have restored the indexation benefit for the LTCG. Is it correct Beta? Jai: Yes, Yes Mousi ji, Hon. FM has announced in parliament that they have restored the benefits of indexation. Now in the case of LTCG from the transfer of land and buildings purchased before 23rd July 2024, the tax calculated @12.5% without indexation or @20% with indexation- whichever is lower, would be the tax liability. Mousi: Ok Beta, so all the assets purchased up to 22nd July 2024 would be eligible for indexation, right? Jai : Aree nahi Mousi. Only land and buildings would be eligible for this indexation benefit. Other assets like your jewelry etc. would not be eligible. Mousi : Samjhi, got it. Achha, I have a partnership with Basanti and we have purchased land in that firm. Indexation benefit is available for this land- hai na? Jai : Na,na, na Mousi ji. Indexation benefit has been restored only for individuals and HUFs. Properties purchased by Firms, Companies, Associations, etc. are no more eligible for indexation. Mousi: Hmmm. Okay. My son is now an NRI and he is having a nonagriculture land in Ramgarh. When he will be selling his land, he would be entitled to the benefits of indexation, Theek hai na? Jai: Ab kya kahoon Mousi, even amongst Individuals and HUFs, they are giving the benefit of indexation to only residents. Nonresidents will not get the benefit of indexation from now onwards. Mousi : Beta, ek baat aur bata do If I sell my residential house and claim exemption from capital gains by investing in another house or in Capital Gains bonds, whether I can invest capital gains after indexation to get a full exemption? Jai : Ab aisa hai Mousi that Indexation as a concept for calculation of taxable capital gain is gone. It has been brought back only for limited purposes of tax liability determination. So for exemptions u/s. 54,54B and 54EC, the amount invested would be compared with gains without indexation. Even if you have some loss after indexation, this much loss would not be allowed to be carried forward/ adjusted with other capital gains Mousi : Sahi hai Beta. So what you saying is that indexation would be available but only for land and buildings and not for other assets. If the payer is NR or is a firm/company etc., then indexation would not be available. It would be used for tax calculation but can not be considered for determination of the amount of loss or amount of investment to be done to get full exemption u/s. 54,54B,54EC, etc. Beta kya tumhe nahi lagta, that with so many ifs and buts, the law is more complicated now than earlier. Jai : Kamaal hai Mousi. Aap to samajhti hi nahi — You don’t understand. They have mentioned it very clearly in the Finance Bill memorandum that it is an exercise to simplify the act. This is their idea of simplification.

Jai: "Mousi, one more thing. My friend's father sold a property last month — he was telling me his actual tax came out to almost 15%, not 12.5%. Was he calculating wrong?"

Mousi: "He was probably calculating right. The 12.5% is the base income tax rate. On top of that, two things get added — surcharge if his total income for the year is high enough, and a 4% health and education cess on the tax plus surcharge."

Jai: "What's the surcharge?"

Mousi: "It depends on his total income. If his total income for the year — including the capital gain — is below ₹50 lakh, there is no surcharge. Between ₹50 lakh and ₹1 crore, it is 10% of the tax. Between ₹1 crore and ₹2 crore, it is 15%. Above ₹2 crore, the surcharge would normally be 25% or 37%, but for long-term capital gains the surcharge is capped at 15% — that cap was put in place specifically so high-income sellers don't pay more than 15% surcharge on this kind of income."

Jai: "So for someone selling a ₹10 crore property, what does that work out to?"

Mousi: "For a long-term capital gain in the upper tax bracket — ₹2 crore and above — the effective rate is roughly 14.95% — that is 12.5% × 1.15 surcharge × 1.04 cess. For someone with total income below ₹50 lakh, it stays at 13%. The actual number for any specific seller depends on their total income; their CA works out the right one."

Jai: "So the headline 12.5% is the floor, and the ceiling is 14.95%."

Mousi: "For long-term capital gains on property, yes. The cap matters because it stops the surcharge from compounding the way it does on regular income at very high levels. For anyone selling a serious South Delhi property, this is the calculation that actually applies."

Note: The dialogue above reflects the actual rules as amended. Indexation has been restored for land and buildings — but only for resident individuals and HUFs, only for pre-July 23, 2024 purchases, and only for the purpose of tax calculation, not for determining the amount eligible for exemption under Sections 54, 54B, and 54EC. Always verify your specific situation with a qualified chartered accountant.

Grey Beard Real Estate

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