Indexation Benefit (Removed)

Tax & Deductions

Indexation was a method of adjusting the cost of a capital asset for inflation (using CII -- Cost Inflation Index) before computing long-term capital gains. This reduced taxable LTCG. The Finance Act 2024 removed indexation for most assets effective July 23, 2024 -- now LTCG on property and debt at flat 12.5% without indexation.

In detail

Pre-July 2024 (with indexation):nProperty bought for Rs 30L in 2010. CII 2010=167, 2024=363.nIndexed cost = Rs 30L x 363/167 = Rs 65.2LnSale price Rs 90L. LTCG = Rs 90L - Rs 65.2L = Rs 24.8L. Tax at 20% = Rs 4.96LnnPost-July 2024 (without indexation):nSale price Rs 90L. Cost Rs 30L. LTCG = Rs 60L. Tax at 12.5% = Rs 7.5LnnFor property bought recently (2-5 years ago): new regime may actually be BETTER (lower rate). For property bought 10-20 years ago: old regime with indexation was usually better. For assets bought before July 23, 2024: option to use pre-2024 rules available (choose whichever is lower).

Formula

Old: Indexed cost = Original cost x (CII sale year / CII purchase year)nOld LTCG = Sale price - Indexed cost, taxed at 20%nNew: LTCG = Sale price - Original cost, taxed at 12.5% (no indexation)

Real-life example

🇮🇳 India example

Sunita bought flat for Rs 40L in 2005. Selling for Rs 1.5 Cr in 2025. Old regime (indexation): CII 2005=117, 2025=~400. Indexed cost = Rs 40L x 400/117 = Rs 136.8L. LTCG = Rs 1.5Cr - Rs 1.37Cr = Rs 13.2L. Tax at 20% = Rs 2.64L. New regime (flat 12.5%): LTCG = Rs 1.1Cr, tax = Rs 13.75L. Old regime with indexation was much better for long-held properties. She can opt for old regime here.

Frequently asked questions

Can I still use indexation for property sold in 2025? ▼

For property purchased before July 23, 2024: yes, you can choose between old regime (indexed cost, 20% tax) and new regime (no indexation, 12.5% tax). Choose whichever results in lower tax. Most people who bought property 10+ years ago benefit from the old indexed calculation. Post-July 2024 purchases: no indexation option.