Should capital gain, loss be calculated on indexed or unindexed basis for income tax set-off ?

Tax set off rules for LTCG

Selling assets such as property can create both long-term gains and losses and understanding how these are taxed is crucial. Today's Ask Wallet Wise query answers how recent changes in indexation rules have altered taxation and how losses can be set off against gains.

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I have sold two properties in FY26 that were bought 10 years ago. One is land, for which the indexed long-term loss is Rs 6 lakh. The other property is a commercial office space, for which the indexed long-term profit is Rs 10 lakh. Will I get intra-head adjustment of the indexed LTCL with LTCG? What will be my final tax outflow in this scenario?

Expert advice: The benefit of indexation has been largely removed for long-term capital assets transferred on or after July 23, 2024. Indexation is now available only for a limited purpose: computing tax liability on the sale of land and buildings purchased before July 23, 2024 and sold on or after that date. In such cases, a resident taxpayer, being an individual or an HUF, has the option to pay tax at the lower of 12.5 percent on unindexed long-term capital gains or 20 percent on indexed long-term capital gains.

Except for computing tax liability, unindexed long-term capital gains are used for purposes such as determining the amount to be invested for claiming long-term capital gains exemption by investing in a residential house or capital gain bonds. Similarly, only unindexed gains are considered for determining the threshold for applying surcharge and the amount of long-term capital loss that can be set off against long-term capital gains.

In your case, you should first compute unindexed long-term capital gains/losses for the land and the commercial office space separately. If the resultant figure for any asset is a loss, it can be set off against the capital gains from the other asset. There is also a possibility that you may not have any unindexed long-term capital loss for either of the two assets.

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