The world of taxation in India witnessed a major shake-up in July 2024 when the Finance Bill 2024 initially removed the indexation benefit for calculating long-term capital gains (LTCG) on the sale of land and buildings. This sudden move caused a wave of concern among property owners, tax professionals, and real estate investors.
However, after public backlash and industry representation, the government reinstated indexation benefits for resident individuals and HUFs through a grandfathering clause.
The amendment was introduced in the Finance (No. 2) Bill, 2024, during the Lok Sabha session in late July and was widely covered by tax alerts and analyses. For example, an EY alert dated August 2024 highlights that this relief applies only to immovable property acquired before July 23, 2024, and only for resident individuals and HUFs.
While there isn’t a specific CBIC “circular” published publicly for this change, several authoritative sources confirm the amendment details:
- Finance (No. 2) Act, 2024 officially added the second proviso to Section 112, reinstating indexation for qualifying sales.
- EY Tax & Regulatory Alert – August 2024 spells out that for immovable property acquired before July 23, 2024, resident individuals and HUFs can opt for whichever tax method yields lower liability.
While this brought relief, it also created two different tax calculation methods, leaving taxpayers confused. In this blog, we’ll break down what this really means, with practical examples, decision-making steps, and tax-saving strategies.
1. Background: Why Indexation Benefit Matters
Earlier, indexation allowed taxpayers to adjust the purchase price of a capital asset for inflation, thus reducing taxable capital gains. However, Budget 2024 (initial proposal) had removed indexation benefit for certain assets like debt mutual funds, bonds, gold, and immovable property, taxing them at a flat rate of 12.5% without indexation.
After protests from taxpayers and industry experts, the CBDT reinstated indexation benefit through a circular on 29th August 2024, effective for certain assets sold on or after 23rd July 2024.
2. What the New Circular Says
As per the CBDT Circular, the following applies:
| Particulars | Before 23 July 2024 | On or After 23 July 2024 |
| Listed Equity / Equity MF | 10% on LTCG above ₹1 lakh (No indexation) | Same rule continues |
| Unlisted Shares / Business Assets | 20% with indexation benefit | 12.5% without indexation (OR 20% with indexation, whichever is lower) |
| Debt Mutual Funds / Bonds / Gold | 20% with indexation benefit | 12.5% without indexation (OR 20% with indexation, whichever is lower) |
| Immovable Property (Land/Building) | 20% with indexation benefit | 12.5% without indexation (OR 20% with indexation, whichever is lower) |
- Taxpayers can choose the lower tax liability — either flat 12.5% without indexation or 20% with indexation.
3. Practical Steps for Computation
Step 1: Identify the Asset Type
- Equity-oriented assets – Always taxed at 10% LTCG (no indexation).
- Other capital assets – Apply either 12.5% without indexation or 20% with indexation.
Step 2: Determine Period of Holding
| Asset | Long-Term Threshold |
| Immovable Property | > 24 months |
| Debt Mutual Funds / Bonds | > 36 months |
| Unlisted Shares / Business Assets | > 24 months |
| Equity Shares / Equity MF | > 12 months |
- Holding period affects whether you get long-term or short-term tax treatment.
Step 3: Calculate Indexed Cost of Acquisition
Use Cost Inflation Index (CII) notified by CBDT.
Formula:
Indexed Cost = Original Purchases Price X CII of Sale Year
CII of Purchases Year
Example:
- Property purchased in FY 2018-19 for ₹50,00,000
- Sold in FY 2024-25 for ₹1,00,00,000
- CII for FY 2018-19 = 280
- CII for FY 2024-25 = 363
Indexed Cost =50,00,000 X 363/280 =64,82,142/-
Step 4: Calculate Tax Liability under both the options
- Option A: Without indexation @12.5%
Capital Gain = ₹1,00,00,000 – ₹50,00,000 = ₹50,00,000
Tax = ₹50,00,000 × 12.5% = ₹6,25,000
- Option B: With indexation @20%
Capital Gain = ₹1,00,00,000 – ₹64,82,142 = ₹35,17,858
Tax = ₹35,17,858 × 20% = ₹7,03,572
Step 5: Compare & Choose Tax Liability under both the options
Option A: Without indexation @12.5% : ₹6,25,000
Option B: With indexation @20% : ₹7,03,572
- Choose lower tax liability: ₹6,25,000 (without indexation) as it saves ₹ 78,572
4. Practical Considerations for Tax Planning
a) Sale Timing
- If you are close to the 24-month or 36-month threshold, consider postponing the sale to qualify for LTCG treatment.
b) Document Management
Keep & Maintain Proper Documentation such as:
- Original purchase documents: Sale deed, agreement to sell, stamp duty receipts
- Improvement/renovation bills: Bills for renovation, extensions, etc. (these can be indexed too)
- Sale documents: Sale deed, TDS certificate if buyer deducted TDS u/s 194-IA
- Valuation report (if purchased before 1st April 2001)
- CII proof from official CBDT notification
c) Impact on 54, 54F, and 54EC Exemptions
- Exemption amounts continue to be calculated on actual capital gain, whether with or without indexation.
- Investment in new residential property or specified bonds must be done within prescribed timelines:
- 54/54F – within 2 years (purchase) or 3 years (construction)
- 54EC – within 6 months
5. Practical Decision Framework
| Scenario | Suggested Approach |
| Indexation reduces taxable gain significantly | Opt for 20% with indexation |
| Asset held for short duration | 12.5% without indexation likely better |
| Purchased long ago with low purchase cost | 20% with indexation usually better |
| Unsure about future tax rates | Book gains now if indexation benefit maximizes savings |
6. Compliance & Filing
- Report correctly in ITR under Capital Gains Schedule.
- Mention CII values used and attach supporting documents if required.
- Use Form 26AS and AIS/TIS to reconcile with buyer’s TDS deduction.
- For property sales, TDS @1% (Section 194-IA) is mandatory if sale consideration > ₹50 lakh.
7. Summary of Practical Action Points
- Identify type of capital asset.
- Check holding period to determine LTCG eligibility.
- Compute both options — 12.5% without indexation vs 20% with indexation.
- Choose lower tax liability for filing.
- Maintain all documents for future scrutiny.
- Invest in exemption bonds or property if planning to save tax further.
- Ensure TDS reconciliation before filing returns.
8. Final Thoughts
The reinstatement of the indexation benefit via the Finance (No. 2) Act, 2024 offers flexibility and fairness—especially for long-term property holders. The key takeaway? Always compare both tax methods, choose the better one, plan your investments wisely, and file carefully.