Income Tax Bill 2025: No Changes to LTCG Tax on Property
The Income Tax Bill 2025 has brought no changes to the taxation of long-term capital gains (LTCG) derived from residential property. This means existing provisions, including tax rates and indexation benefits for resident individuals and HUF taxpayers, remain the same. This article breaks down how LTCG on property works, including indexation, calculation methods, and important dates.
What are Capital Gains?
Profit or gains from transferring capital assets like property, shares, bonds, or vehicles are taxed under “Income from Capital Gains.” Assets are categorized as short-term or long-term. Long-term gains/losses arise from transferring long-term capital assets.
Long-Term Capital Assets
An asset such as land, building, house property, jewellery, patent, is long-term if held for over 24 months. The period is shorter for listed securities and equity-oriented funds that are considered as long-term if held for over 12 months.
Investing in immovable property, especially a house, is a popular choice, either for personal ownership or profit through resale. Under income tax laws, a house is considered a capital asset, and any gain or loss from its sale is taxed under the Capital Gains head. Similarly, capital gains taxation applies to other investments such as stocks, mutual funds, bonds, and financial assets. Understanding these tax implications is essential for strategic investment and tax planning.
Calculating Long-Term Capital Gains on Property
For properties held for more than 24 months before sale, gains are taxed as LTCG. LTCG is calculated by deducting the cost of acquisition, improvements, and sale expenses from the sale price.
Example: A property sold for ₹1 crore, purchased for ₹50 lakh, with ₹10 lakh in improvements and ₹2 lakh in sale expenses, has a LTCG of ₹38 lakh (₹1 crore – ₹62 lakh).
The Importance of Indexation
Indexation adjusts the purchase price for inflation using the Cost Inflation Index (CII), reducing taxable gains. It’s calculated by multiplying the purchase price by the CII of the sale year and dividing by the CII of the purchase year.
| Feature | Without Indexation | With Indexation |
|---|---|---|
| Purchase Price (2010) | ₹20,00,000 | ₹20,00,000 |
| Sale Price (2024) | ₹50,00,000 | ₹50,00,000 |
| CII (2010) | N/A | 167 |
| CII (2024) | N/A | 363 |
| Indexed Cost of Acquisition | N/A | ₹43,53,293 (approx. ₹43.53 lakh) |
| Capital Gain | ₹30,00,000 | ₹6,46,707 (approx. ₹6.47 lakh) |
| Tax Benefit Availability | All | Resident Individuals & HUFs |
How LTCG Taxes Work
LTCG on property sales in India is governed by Section 112 of the Income Tax Act, 1961 (Section 197 of the Income Tax Bill, 2025).
- Property acquired before July 23, 2024 and sold before this date: Tax is 20% (with indexation), plus surcharge and cess.
- Property acquired before July 23, 2024 and sold on or after this date: Tax is the lower of 12.5% (without indexation) or 20% (with indexation), plus surcharge and cess.
- Property acquired on or after July 23, 2024: Tax is 12.5% (without indexation), plus surcharge and cess.
Example: A house bought on April 2, 2001, for ₹10 lakh and sold on February 24, 2025, for ₹50 lakh, has a LTCG of ₹40 lakh. The tax is the lower of 12.5% (₹5 lakh) or 20% with indexation (₹2.74 lakh in this example), plus surcharge.
Short-Term Capital Gains
Short-term capital gains are taxed according to the individual’s applicable income tax slab rates. Example : If a taxpayer realizes a short-term capital gain of ₹4 lakh and falls within the 30% tax bracket, the tax liability would be ₹1,20,000 (₹4 lakh x 30%). The gain or loss from the sale of a property is calculated by subtracting the purchase cost, any improvement expenses, and direct selling costs from the sale proceeds.