Selling property in India? Compare 12.5% without indexation against 20% with. The crossover rule, a worked example, and why NRIs cannot choose.
If you are a resident individual selling a Bangalore property you bought before 23 July 2024, you do not choose between 12.5 percent without indexation and 20 percent with indexation. You compute both and pay the lower. The Income Tax Department states the mechanism precisely: where tax under the new law exceeds tax under the old law, "the excess amount shall be ignored." That grandfathering applies only to resident individuals and Hindu Undivided Families, and only to land or buildings acquired before 23 July 2024. If you are an NRI, the option does not exist. You pay 12.5 percent without indexation, full stop, and on a long-held Bangalore address that can be the more expensive outcome.
Long-term capital gains on property transferred on or after 23 July 2024 are taxed at 12.5 percent without indexation under the Finance (No. 2) Act, 2024. Before that date the rate was 20 percent with indexation (Income Tax Department).
The grandfathering is a comparison, not an election. You compute tax both ways and the excess under the new law is ignored.
It is limited to resident individuals and HUFs, and to land or buildings acquired before 23 July 2024. The Department's own illustration shows a non-resident denied the benefit on identical facts.
Holding period for immovable property is 24 months, whether the transfer happens before or after 23 July 2024.
The arithmetic crossover is calculable. Indexation at 20 percent wins whenever your net sale consideration is less than (2.67 × indexation factor − 1.67) times your original cost.
Section 54 reinvestment relief is capped at ₹10 crore with effect from Assessment Year 2024-25, and the same cap applies to Capital Gains Account Scheme deposits.
Section 54EC bonds are capped at ₹50 lakh, must be bought within six months of transfer, and carry a five-year lock-in.
The Finance (No. 2) Act, 2024 introduced a uniform 12.5 percent rate on long-term capital gains arising from the transfer of any capital asset on or after 23 July 2024, and removed the indexation benefit. Where the asset was transferred on or before 22 July 2024, the rate was 20 percent with indexation.
Then came the walk-back. In the Department's words: "a grandfathering is allowed for land or building in case of resident individual/HUF." The mechanics matter more than the headline. As the Department puts it, "if the amount of tax under the new law exceeds the amount of tax under the old law, the excess amount shall be ignored. However, this grandfathering provision applies only to resident individuals or Hindu Undivided Families (HUFs) and only for land or buildings acquired before July 23, 2024."
Read that carefully, because a great deal of published commentary describes it as an option you elect. It is not. It is a ceiling. You run both computations and your liability is capped at the lower figure. There is no form to tick and no election to preserve. What there is, is a computation your chartered accountant must actually perform, and an assessment that will not perform it for you.
Two threshold conditions catch people out at this end of the market. First, the asset must be land or a building. The relief does not extend to other capital assets. Second, the acquisition date, not the transfer date, must precede 23 July 2024. A luxury apartment booked in 2021 but registered in 2025 raises a real question about which date governs, and that is worth resolving with your CA before you sign a sale agreement rather than after.
The holding period is 24 months for immovable property. The Department is explicit that for immovable property such as land or buildings, "the holding period shall be 24 months to determine whether the asset is classified as short-term or long-term, regardless of whether the transfer occurs before or after 23-07-2024."
The difference is not just the rate. It is what you are allowed to subtract.
| 12.5 percent route | 20 percent route | |
|---|---|---|
| Sale consideration | Full value of consideration | Full value of consideration |
| Less | Transfer expenditure such as brokerage | Transfer expenditure such as brokerage |
| Less | Cost of acquisition, unindexed | Indexed cost of acquisition |
| Less | Cost of improvement, unindexed | Indexed cost of improvement |
| Rate on the resulting gain | 12.5 percent | 20 percent |
| Available to | Everyone | Resident individuals and HUFs only |
The indexed cost is computed as cost of acquisition multiplied by the Cost Inflation Index of the year of transfer, divided by the Cost Inflation Index of the year of acquisition. The notified index runs from 100 for FY 2001-02 to 363 for FY 2024-25 and 376 for FY 2025-26.
So the 20 percent route applies a higher rate to a smaller number, and the 12.5 percent route applies a lower rate to a larger number. Which wins depends entirely on how far your acquisition year sits from your transfer year, and on how much the property actually appreciated.
Take a CBD apartment bought in FY 2012-13 for ₹3.5 crore and sold in FY 2025-26 for ₹11 crore, with brokerage of ₹22 lakh. Owner is a resident individual.
The 20 percent route. Net consideration is ₹11 crore less ₹22 lakh, or ₹10.78 crore. The CII for FY 2012-13 is 200 and for FY 2025-26 is 376, so the indexation factor is 1.88. Indexed cost of acquisition is ₹3.5 crore multiplied by 1.88, or ₹6.58 crore. Long-term capital gain is ₹4.20 crore. Tax at 20 percent is ₹84 lakh.
The 12.5 percent route. Net consideration is the same ₹10.78 crore. Cost of acquisition is the unindexed ₹3.5 crore. Long-term capital gain is ₹7.28 crore. Tax at 12.5 percent is ₹91 lakh.
The resident owner pays ₹84 lakh. The ₹7 lakh excess computed under the new law is ignored.
Now change one variable. Same sale, but the apartment was bought in FY 2020-21 for ₹6 crore. The CII for FY 2020-21 is 301, giving an indexation factor of 1.2492. Indexed cost is ₹7.49 crore, gain is ₹3.29 crore, tax at 20 percent is roughly ₹65.7 lakh. Under the new route the gain is ₹4.78 crore and tax at 12.5 percent is ₹59.75 lakh. Here the new law wins by about ₹6 lakh.
Both figures are before applicable surcharge and health and education cess, which the Department's illustrations apply at 4 percent on the tax.
You can work out which route wins before you run the full computation. Setting the two tax figures equal and solving gives a single test.
Indexation at 20 percent produces the lower tax whenever your net sale consideration is less than (2.67 × indexation factor − 1.67) times your original cost.
In the first example the indexation factor was 1.88, so the threshold multiple is 3.35. The actual multiple of net consideration to cost was 3.08, below the threshold, so indexation won. In the second example the factor was 1.2492, the threshold multiple was 1.66, and the actual multiple was 1.80, above the threshold, so the flat rate won.
This is arithmetic derived from the two statutory computations, not a rule stated anywhere in the Act, and it ignores surcharge and cess because those apply to both routes. But it tells you the shape of the answer immediately: the longer you have held and the more modestly the property has appreciated, the more indexation helps you. Aggressive appreciation over a short window pushes you toward 12.5 percent.
For Bangalore this is not academic. A Lavelle Road or Vittal Mallya Road holding bought in the early 2010s has typically appreciated at a rate that sits close to the crossover, which means the answer genuinely varies deal by deal. A North Bangalore or Devanahalli position bought after the airport corridor repriced has usually appreciated fast enough that the flat rate wins. My comparison of what ₹10 crore bought in Bangalore in 2016 versus 2026 gives the corridor-level movement you would plug into this test.
This is the single most consequential point for Bangalore's seller base, and it is routinely reported wrongly.
The Department publishes an illustration directly on point. A non-resident purchased land in December 2006 for ₹28,100 and sold it in December 2024 for ₹5,00,000. The computation shows tax at 12.5 percent on the unindexed gain of ₹4,71,900, giving ₹58,988 plus cess. The Department then states the reason without qualification: "Although the capital asset being sold is a piece of land which was acquired before July 23, 2024, grandfathering provisions are not be applicable as same are applicable only to a resident individuals or HUF."
On the same facts, a resident individual would have been able to compare and pay under the old law. The Department runs that parallel illustration too, and the resident's liability comes out lower.
There is a second disadvantage stacked on top. Only a resident individual or resident HUF can adjust the basic exemption limit against long-term capital gains. A non-resident cannot. On a large gain this is immaterial in percentage terms, but it compounds the pattern: the statute treats the resident seller and the NRI seller as different taxpayers on the same asset.
Residential status here is determined under the Income-tax Act, not by your passport or your visa. An NRI planning a sale should establish residential status for the relevant previous year before fixing a completion date, because in some cases the date of transfer is the only variable within your control. Separately, the withholding position differs sharply for NRI sellers, which I have covered in the piece on TDS when an NRI sells property in India, and the two issues need to be planned together rather than sequentially.
Reinvestment relief matters more than rate arbitrage at this ticket size, because the amounts involved dwarf the difference between 12.5 and 20 percent.
Section 54 covers reinvestment in a residential house. It applies where the gain arises on transfer of a long-term residential house property. The taxpayer must purchase another house within one year before or two years after the date of transfer, or construct one within three years from the date of transfer. Crucially for this market, with effect from Assessment Year 2024-25 the Finance Act 2023 restricted the maximum exemption: where the cost of the new asset exceeds ₹10 crore, the excess is ignored in computing the exemption. The Department's own illustration works a ₹13 crore gain down to ₹3 crore taxable after a ₹10 crore capped exemption.
Where the gain has not been reinvested by the return filing due date, the unutilised amount can be parked in the Capital Gains Account Scheme at a public sector bank branch and withdrawn within the two or three year window. The ₹10 crore cap applies there too: deposits above ₹10 crore are not taken into account. And if the deposited money is not actually used within the window, the exemption is revoked and taxed as long-term capital gain in the year the period expires.
One further point. The option to claim Section 54 exemption across two residential houses is available only where the capital gain does not exceed ₹2 crore, which on a Bangalore luxury exit will usually not be the case.
Section 54EC covers bonds. It applies to gains from transfer of land, building, or both. The exemption is the lower of the capital gain, the amount invested, or ₹50,00,000. Qualifying investments include bonds issued by the National Highways Authority of India, Rural Electrification Corporation Limited, or any other bond notified by the Central Government. The investment must be made within six months from the date of transfer. If the bonds are transferred or converted into cash within five years, the previously exempted gain becomes taxable as long-term capital gain in the year of transfer or conversion. The aggregate across the year of transfer and the following financial year is also capped.
Fifty lakh is fifty lakh. On a ₹4 crore gain it moves the needle by about ₹6 lakh of tax at 12.5 percent. Useful, not decisive. Section 54 is where the real relief sits for anyone genuinely rolling into another home.
No Chapter VI-A deductions. No deduction under Sections 80C to 80U is allowed against long-term capital gains. The PPF and insurance premiums you paid do nothing here.
The cost of improvement file. Indexed cost of improvement is deductible under the old route, indexed from the year the improvement was made. On a bungalow or a heavily fitted-out apartment this can be substantial, and it is almost always the item sellers cannot document. Capital improvements need invoices and payment trails, and reconstructing them a decade later rarely works.
Brokerage and transfer costs. Expenditure incurred wholly and exclusively in connection with the transfer is deductible under both routes. Keep the brokerage invoice.
Timing the transfer year. Because the indexation factor uses the CII of the year of transfer, moving a completion across a financial year boundary changes the old-law computation. It also changes which year's return the gain falls into, and therefore your reinvestment deadlines.
The registration value floor. A Bangalore sale cannot be registered below guidance value, which sets a floor under your declared consideration and therefore under your computed gain. If you have not read why guidance value governs your registered price, it is the companion piece to this one, because the number at the top of your capital gains computation is set there.
I should be plain about my own position. I am a real estate advisor, not a chartered accountant, and nothing above is tax advice on your facts. What I can tell you from sitting on the sell side of these transactions is that the computation is almost always run too late, after a price has been agreed and a completion date fixed, when the two variables that matter most have already been given away.
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