How to calculate capital gain for property sold in FY2025-26? Should you pay 12.5% or 20%?

Is indexation benefit avaibale for 2025-2026?

The capital gain rules have changed for property sold on and after July 23rd, 2024. Today's Ask Wallet Wise query decodes the income tax rules for the computation of capital gains for FY2025-26.

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I would like to know the minimum amount of LTCG tax I have to pay on the sale of a flat. I am confused between the 20% and 12.5% rates. The property was purchased on 9th October 2017 and is being sold during the current year. 

Expert Advice: Significant changes were brought by the budget of 2024 in the field of capital gains taxation. The significant one among them was the removal of the benefit of indexation for the computation of long-term capital gains.

Earlier, there were three different holding period requirements for a capital asset to become a long-term capital asset. For listed securities and equity-oriented schemes holding period requirement was more than one year. For unlisted shares and land & building, it was two years, and for the rest of the capital assets, it was three years. After the amendment to the budget in July 2024, the holding period requirement for the rest of the capital assets has been brought down to more than two years, and thus prescribing two holding period requirements of more than one year and more than two years for this purpose.

Though the benefit of indexation is abolished but it is still available for the limited purpose of computation of tax liability in respect of land and building, acquired by a resident individual and a resident HUF, and sold on or after 23rd July 2024. In such a case, the taxpayer has the option to pay tax on such long-term capital gain lower of at either 12.50% of unindexed long-term capital gains or at 20% on indexed long-term capital gains.

Since you have held the flat for more than 2 years, the profits would be treated as long-term capital gains. I have assumed that you are a resident of India for income tax purposes.  Since the flat was bought before 23rd July 2024, and the profits are long-term capital gains, you have the option to choose between paying tax @ 12.50% on unindexed long-term capital gains or @ 20% on indexed long-term capital gains. Please note that this benefit is available only for the limited purpose of computing the tax liability and not for other purposes like the amount to be invested for claiming exemption for long-term capital gains, as well as for determining the threshold level of income for applying the surcharge liability.

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