Who can avail the indexation benefit in property sale and is it even worth it?

Subscribe to enjoy similar stories. Budget 2024 scrapped the indexation benefit—a provision that allowed adjusting prices for inflation—to make tax rates uniform across asset classes. For real estate, the tax on long-term capital gains (LTCG) — when a property is held for at least two years—was reduced from 20% with the indexation benefit to 12.5% without it.

Following concerns that this could increase the tax liability for real estate investors, the government introduced a grandfathering clause to allow indexation on properties bought before 23 July 2024—the day the budget was presented. Under the clause, if the new 12.5% tax rate results in a higher liability than the previous 20% rate with indexation, the excess tax will be ignored. However, if the indexation results in a capital loss— the cost of acquiring a property is higher than the sale price — it can no longer be set off against capital gains.

“There can be no capital loss arising due to indexation as indexation is only for the computation of tax liability and not for the computation of capital gain," explained Gautam Nayak, partner at CNK & Associates. “Capital loss computed without indexation can be set off against other capital gains." Here is a look at how capital losses can be used to reduce capital gains and carried forward under the new tax rate; and when the indexation benefit with the older tax rate can help save more tax. If the capital loss occurs without indexation, it can be utilized to set off gains and the unabsorbed losses can be carried forward.

Assuming Mr. A bought a property for ₹1 crore in FY02 and sold it for ₹80 lakh in FY25. Let’s assume Mr.