Bottom line up front: if you are a resident individual or HUF selling a house or plot that you bought before 23 July 2024, you don’t have to accept the new 12.5%-without-indexation rate blindly. The law lets you compute the tax both ways — 12.5% without indexation and the old 20% with indexation — and pay whichever is lower. The practical rule of thumb that falls out of the maths is simple: if your property grew faster than about 10% a year, the new 12.5% usually wins; if it crawled up more slowly than that, the old 20%-with-indexation usually wins.
This article gives you the exact break-even, a decision table by holding period, and two full worked examples — one where the old method wins and one where the new method wins — so you can tell in a minute which side of the line your property sits on.
What actually changed on 23 July 2024
The Finance (No.2) Act 2024 cut the long-term capital gains rate on land and buildings from 20% (with indexation) to a flat 12.5% without indexation, for transfers on or after 23 July 2024. Removing indexation was the sting in the tail — indexation is what inflates your purchase cost using the Cost Inflation Index (CII) so that you are taxed only on the “real” gain, not the inflationary part.
After an outcry, the government added a relief. Under the second proviso to Section 112(1)(a), a resident individual or HUF that sells land or a building acquired before 23 July 2024 may compute tax under both the new and the old method, and the excess of the new-method tax over the old-method tax is ignored. In plain terms: you pay the lower of the two. This option is not available to companies, LLPs, firms, AOPs/BOIs or non-residents — they are on the flat 12.5% only.
The two computations, side by side
| New method | Old method (option) | |
|---|---|---|
| Rate | 12.5% | 20% |
| Indexation of cost | No | Yes (using CII) |
| Who can use it | Everyone (default) | Resident individual / HUF, property acquired before 23 July 2024 |
| Taxable gain | Sale price − actual cost | Sale price − indexed cost |
The break-even, in one line
The old method taxes a smaller gain but at a higher rate; the new method taxes a bigger gain but at a lower rate. Setting the two tax figures equal, the crossover point works out to a neat relationship. If we call the ratio of your sale price to your original cost the “price multiple” (how many times your money grew), the two methods cost the same when:
Indexation factor = 0.375 × (price multiple) + 0.625
You don’t need to memorise the formula. What matters is the intuition it produces: the indexation factor tracks inflation (the CII has risen roughly 5–6% a year), so the old method only pulls ahead when your property barely beat inflation. Once you translate the formula into an annual growth rate for different holding periods, the break-even clusters tightly around 10% a year:
| Bought in FY | Sold FY 2025-26 (CII 376) | Indexation factor | Break-even annual growth | Below this growth |
|---|---|---|---|---|
| 2005-06 (CII 117) | ~20 years held | 3.21× | ~10% | Old 20% wins |
| 2010-11 (CII 167) | ~15 years held | 2.25× | ~10% | Old 20% wins |
| 2015-16 (CII 254) | ~10 years held | 1.48× | ~9% | Old 20% wins |
| 2020-21 (CII 301) | ~5 years held | 1.25× | ~11% | Old 20% wins |
Read the table like this: for a plot bought in 2005-06, the two methods break even at roughly 10% annual appreciation. If your plot grew faster than that (it multiplied more than about 6.9 times over the 20 years), take the new 12.5%. If it grew slower, take the old 20%-with-indexation. The pattern holds across holding periods because indexation and the rate differential move together — the crossover keeps landing near a 10% compound annual growth rate.
Worked example A — modest appreciation, old method wins
You bought a flat in FY 2005-06 for Rs. 20 lakh and sell it in FY 2025-26 for Rs. 90 lakh. That is 4.5 times your money over 20 years — about a 7.8% annual growth rate, below the ~10% break-even.
| Computation | New: 12.5% no indexation | Old: 20% with indexation |
|---|---|---|
| Sale price | Rs. 90,00,000 | Rs. 90,00,000 |
| Cost / indexed cost (Rs. 20,00,000 × 376 ÷ 117) | Rs. 20,00,000 | Rs. 64,27,350 |
| Long-term capital gain | Rs. 70,00,000 | Rs. 25,72,650 |
| Tax | Rs. 8,75,000 | Rs. 5,14,530 |
The old 20%-with-indexation method saves about Rs. 3.6 lakh. Indexation lifts the cost from Rs. 20 lakh to over Rs. 64 lakh, so most of the “gain” is treated as inflation and never taxed.
Worked example B — strong appreciation, new method wins
Same flat, same 2005-06 purchase at Rs. 20 lakh, but a prime location: you sell in FY 2025-26 for Rs. 2 crore. That is 10 times your money — about a 12.2% annual growth rate, above the break-even.
| Computation | New: 12.5% no indexation | Old: 20% with indexation |
|---|---|---|
| Sale price | Rs. 2,00,00,000 | Rs. 2,00,00,000 |
| Cost / indexed cost (Rs. 20,00,000 × 376 ÷ 117) | Rs. 20,00,000 | Rs. 64,27,350 |
| Long-term capital gain | Rs. 1,80,00,000 | Rs. 1,35,72,650 |
| Tax | Rs. 22,50,000 | Rs. 27,14,530 |
Now the new 12.5% method saves about Rs. 4.6 lakh. When appreciation is strong, the flat lower rate beats a higher rate on a slightly smaller (indexed) gain. You can run both computations for your own numbers with our Capital Gains Tax Calculator, and model different sale prices side by side using the Capital Gains Calculator Excel.
Five things to watch
First, the option is a tax comparison only — it does not change the capital gain figure that goes into your return for set-off or exemption purposes, and it cannot create or enlarge a capital loss. Second, it is available only to resident individuals and HUFs; a company or LLP selling the same property has no choice and pays 12.5%. Third, it applies to land and building — not to leasehold rights, and not to shares or mutual funds (which have their own regime). Fourth, indexation for FY 2025-26 uses CII 376, and the government has continued to notify the CII precisely so this option can be exercised. Fifth, if you plan to claim a Section 54/54F/54EC exemption, apply the exemption first and run the 12.5%-vs-20% comparison on whatever gain remains.
Key takeaways
- For property sold on or after 23 July 2024, the default LTCG rate is 12.5% without indexation.
- A resident individual/HUF selling land/building acquired before 23 July 2024 can pay the lower of 12.5% without indexation or 20% with indexation.
- Rule of thumb: property that grew faster than ~10% a year → new 12.5% usually wins; slower than ~10% → old 20%-with-indexation usually wins.
- The choice is not available to companies, LLPs, firms, AOP/BOI or non-residents — they pay the flat 12.5%.
- Always compute both — a few percentage points of appreciation can flip the answer and change the tax by lakhs.
Frequently Asked Questions
Do I have to formally elect the old method, or is it automatic?
There is no separate election form. You compute the tax under the new method and the old method, and report the lower liability in your return — the excess of the new-method tax over the old-method tax is ignored by law. Keep your working, including the indexed-cost calculation, in case of scrutiny.
I bought the flat in 2019 but got possession in 2023. Which date decides “before 23 July 2024”?
The relevant date is when you acquired the asset. For an under-construction purchase, the allotment/agreement date is generally taken as the date of acquisition. Either way, a 2019 booking is comfortably before 23 July 2024, so the option is available to you as a resident individual.
My property barely rose in value. Can the old method give me a loss and hence a refund?
No. The dual computation compares only the tax payable; it does not let indexation manufacture or increase a capital loss. If indexed cost exceeds sale price, the loss is computed under the normal rules without the benefit of this proviso.
Does this 12.5%-vs-20% choice apply to shares and equity mutual funds too?
No. This option is specific to land and buildings. Listed equity and equity mutual funds are taxed under Section 112A (12.5% on long-term gains above Rs. 1.25 lakh, with grandfathering to 31 January 2018) and never had indexation.
I am an NRI selling my flat in India — can I use the 20%-with-indexation option?
No. The second proviso to Section 112(1)(a) is available only to resident individuals and HUFs. As a non-resident you are on the 12.5%-without-indexation rate, and the buyer must deduct TDS under Section 195 rather than the 1% under Section 194-IA.
This article reflects the law for FY 2025-26 (AY 2026-27). The right choice depends on your exact purchase price, purchase year and sale price — run both computations, or ask your CA, before you file.