There is a lot of noise right now around long-term capital gains (LTCG) tax on sale of property in India – especially after the July 2024 changes. Many NRIs are asking:
“Am I better off with the old 20% with indexation or the new 12.5% without indexation?”
The short answer for NRIs is:
– For sales on or after 23 July 2024, long-term capital gains on land/building are taxed at 12.5% without indexation.
– A grandfathering choice between 20% with indexation and 12.5% without indexation is available mainly to resident individuals and HUFs for properties acquired before 23 July 2024.
– For NRIs, practical guidance indicates they are now generally on a flat 12.5% regime without indexation for such property sales.
However, to cut through the confusion and to help NRIs understand why everyone is debating this, it is useful to compare both methods conceptually, and then see with numbers:
– Legacy, long-held properties → old 20% with indexation generally produced lower tax.
– Newer properties (shorter holding) → 12.5% without indexation can come out better.
1. What exactly changed from July 23, 2024?
Earlier, for long-term sale of land or building (holding period more than 24 months):
– LTCG was taxed at 20% with indexation for all taxpayers (including NRIs).
– The Cost Inflation Index (CII) was used to inflate the purchase cost to account for inflation, reducing taxable gains.
After the Finance (No. 2) Act, 2024:
– For transfers on or after 23 July 2024, LTCG on most long-term capital assets, including land/building, is taxed at 12.5% without indexation.
– For properties acquired before 23 July 2024, resident individuals and HUFs may choose between 20% with indexation (old regime) or 12.5% without indexation (new regime), and pay whichever is lower.
For NRIs, the practical position from recent NRI-focused analysis is that they are now effectively under a flat 12.5% LTCG without indexation on property sales made on or after 23 July 2024.
So the “which is better – 20% with indexation vs 12.5% without” debate is mathematical and historic for NRIs (old vs new impact), but it is still very useful for explaining why legacy deals hurt more now.
2. Quick refresher – what is indexation?
Indexation uses the Cost Inflation Index (CII) notified by CBDT to inflate your original purchase price to reflect inflation over the holding period.
Without indexation:
LTCG = Sale price – Original cost (plus improvements and expenses)
With indexation:
Indexed cost = Original cost × (CII in year of sale ÷ CII in year of purchase)
LTCG = Sale price – Indexed cost
The larger the time gap and the higher the inflation, the bigger the benefit of indexation.
3. Case A – Legacy property: why 20% with indexation is usually better
- Consider an NRI who bought a property in 2003 and is selling it in 2025.
Note: Index numbers below are illustrative for ease of understanding. Actual tax should be computed with the notified CII for the relevant years.Example 1 – Long-held “legacy” property:
– Year of purchase: 2003
– Purchase cost: ₹20,00,000
– Assume CII in purchase year: 100 (illustrative)
– Year of sale: 2025
– Sale price: ₹1,20,00,000
– Assume CII in sale year: 350 (illustrative)
-
- Old method – 20% with indexation
Indexed cost = ₹20,00,000 × (350 ÷ 100) = ₹70,00,000
LTCG = ₹1,20,00,000 – ₹70,00,000 = ₹50,00,000
Tax @ 20% = ₹10,00,000 - New method – 12.5% without indexation
LTCG without indexation = ₹1,20,00,000 – ₹20,00,000 = ₹1,00,00,000
Tax @ 12.5% = ₹12,50,000
- Old method – 20% with indexation
For long-held, legacy properties, indexation significantly inflates the cost, bringing taxable gain down. Even at a higher rate of 20%, the absolute tax is often lower than under the new 12.5% regime.
4. Case B – Newer property: when 12.5% without indexation can be better
Now take a more recent purchase – say bought shortly before sale, where inflation has not had much time to work.
Example 2 – Newer property, shorter holding period:
- Year of purchase: 2023
- Purchase cost: ₹80,00,000
- Assume CII in purchase year: 330
- Year of sale: 2025
- Sale price: ₹1,10,00,000
- Assume CII in sale year: 350
- Old method – 20% with indexation (conceptual comparison)
Indexed cost ≈ ₹80,00,000 × (350 ÷ 330) ≈ ₹84,84,848
LTCG ≈ ₹1,10,00,000 – ₹84,84,848 ≈ ₹25,15,152
Tax @ 20% ≈ ₹5,03,000 - New method – 12.5% without indexation
LTCG = ₹1,10,00,000 – ₹80,00,000 = ₹30,00,000
Tax @ 12.5% = ₹3,75,000
Here, indexation barely moves the cost, so the gain remains high. The lower 12.5% rate wins clearly. For newer properties with shorter holding periods, the new 12.5% regime is usually more tax efficient.
5. What does this really mean for NRIs?
From an NRI’s perspective
- For actual sales after 23 July 2024, you are practically on the 12.5% without indexation regime. There is no active option to switch to 20% with indexation for NRIs in current interpretations.
- Legacy properties are the biggest losers under the new law – if you held property from early 2000s or earlier, the old 20% with indexation regime would generally have given lower tax than what you now pay at 12.5% without indexation
- For newer properties, the new regime is not necessarily bad – where the holding period is short and inflation adjustment is small, 12.5% can actually produce a lower tax bill than a hypothetical 20% indexed regime.
- Residents vs NRIs – do not mix the messaging. Many articles explaining “choice between 20% with indexation and 12.5% without” are written with resident sellers in mind. NRIs should read such content critically, because the actual options available to them under the law are narrower
6. Action checklist for NRIs planning to sell property now
Before you decide on a sale
- Check your residential status (NRI / RNOR / Resident).
- Model your tax under the current 12.5% regime with correct cost and improvement details.
- Use exemptions wherever possible (Sections 54, 54F, 54EC) where conditions are met
- Plan TDS and cash flows (Section 195) – consider applying for a lower TDS certificate
- Coordinate tax and FEMA planning together so that sale, credit of proceeds, and repatriation comply with both Income-tax and RBI/FEMA rules
7. Key takeaway you can communicate to NRIs
The debate between “20% with indexation” and “12.5% without” is real in math and very relevant in explaining policy impact, but:
- For legacy properties, the old indexed regime would usually have produced lower tax.
- For newer properties, the new 12.5% regime can be more favourable.
- For NRIs selling now, the law has largely locked them into the 12.5% regime, so tax planning has to focus on exemptions, correct cost computation, TDS management and residency planning, rather than regime selection.
