According to reports from Mint, property sellers in FY 2025-26 have two options for computing long-term capital gains tax on properties purchased before 23 July 2024. Eligible resident individuals and Hindu Undivided Families (HUFs) can choose between 20% tax with indexation or 12.5% tax without indexation. The benefit of indexation depends on how much the property's value has appreciated over time, making it important to compare both tax calculations before filing returns.
As reported by Mint, Financial Advisor Dev Patel from 1 Finance used a practical example to illustrate the tax implications. For a property bought in FY 2017-18 for ₹10 lakh and sold in FY 2025-26 for ₹28 lakh, the adjusted cost of acquisition with indexation increases to ₹13.82 lakh using the Cost Inflation Index (CII) from 272 to 376. This reduces the capital gain to ₹14.18 lakh, resulting in a tax liability of ₹2.83 lakh at 20% with indexation. Without indexation, the taxable gain remains ₹18 lakh, but the flat LTCG tax rate of 12.5% brings the tax liability down to ₹2.25 lakh, making the lower rate option ₹58,529 cheaper.
The delayed release of the Cost Inflation Index (CII) for tax year 2026-27 has created practical challenges for property sellers who opted for indexation benefits. According to tax experts, those who sold properties between April 1, 2026 and June 15, 2026 faced difficulties in estimating advance tax liability without knowing the applicable inflation index. The CII for tax year 2026-27 was notified on July 16, 2026, almost one month after the June 15, 2026 deadline for Q1 advance tax payments. This timing gap forced taxpayers to estimate capital gains based on previous year's CII, potentially leading to underestimation or overestimation of advance tax obligations.
According to Patel's analysis reported by Mint, indexation only benefits when the property's appreciation barely exceeds inflation. The CII rose 38% over eight years, roughly 4% annually, while the property nearly tripled in value. Patel explained that once gains run far ahead of inflation, the rate cut does more for taxpayers than the cost adjustment. He noted that break-even sits near ₹20.2 lakh - if the sale price is below this threshold, indexation is preferable, while above this amount, the 12.5% flat rate typically provides better tax savings. The recently notified CII of 384 for tax year 2026-27 demonstrates this impact - for a residential property sold for ₹2 crore originally acquired in FY 2010-11 for ₹50 lakh, the higher CII increases the indexed cost of acquisition and reduces tax liability by approximately ₹47,904, decreasing Q1 advance tax requirement by around ₹7,185.
As reported by Mint, the indexation benefit is available only for resident individuals and HUFs selling land or buildings acquired before 23 July 2024. Properties purchased on or after this date are taxed exclusively at the 12.5% flat rate without indexation. The tax structure varies by holding period - for properties held less than 24 months, short-term capital gains tax applies, while properties held for more than 24 months qualify for long-term capital gains tax calculations. However, non-resident taxpayers are subject to different rules - the Finance (No. 2) Act, 2024 amended Section 112(1)(c) to set a flat 12.5% LTCG rate for non-residents effective 23 July 2024, removing indexation and eliminating the dual-computation option that resident taxpayers retain. The delayed CII release particularly impacts those who sold properties between April 1, 2026 and June 15, 2026, as they had to estimate advance tax without knowing the final inflation adjustment figures.
