Capital Gains Tax Rules: Opting Between 20% with Indexation and 12.5% Exemptions
Tax Rule Update: Understanding the Option for Lower Capital Gains Tax
The income tax laws in India have introduced a new option for taxpayers to choose between a 20 percent tax rate with indexation and a 12.5 percent tax rate without indexation for long-term capital gains from the sale of land or building acquired prior to July 23, 2024. This option is available to resident individuals and Hindu Undivided Families (HUFs) who have sold such properties during the financial year 2025-26.
Multiple Properties and Jointly Held Assets
The question arises whether taxpayers can file separate returns for different properties and choose the lower tax rate for each property. The answer lies in the fact that each transaction of sale or transfer is treated as a separate transaction for the purpose of taxation. This means that taxpayers can choose to pay tax at 20 percent on indexed long-term capital gains for one property and at 12.5 percent on unindexed long-term capital gains for another property, provided the taxpayer is a resident individual or an HUF and the capital gains arise from the sale of land or building or both.
Jointly Held Properties
In the case of jointly held properties, each joint holder is free to exercise the option that is beneficial for them. However, it is essential to note that the computation of long-term capital gains will be the same for both joint holders. This means that it is unlikely that one joint holder will have a lower tax liability under 20 percent with indexation while the other opts for 12.5 percent without indexation.
Important Conditions and Limitations
It is crucial to understand that the option of the lower of 20 percent with indexation and 12.5 percent without indexation is available only for payment of tax and not for claiming exemption under Section 54 or 54EC. Taxpayers must carefully consider their options and choose the one that benefits them the most.
Read also: Missing a Single EMI Payment Can Adversely Impact Credit Profile
| Tax Rate | Indexation | Eligibility |
|---|---|---|
| 20% | With Indexation | Resident Individual, HUF, land or building acquired prior to July 23, 2024 |
| 12.5% | Without Indexation | Resident Individual, HUF, land or building acquired prior to July 23, 2024 |
More in General
Correcting Credit Score Errors: A Guide to Ensuring Accurate CIBIL Reports and Optimal Loan Eligibility
Missing a Single EMI Payment Can Adversely Impact Credit Profile
EPF Withdrawal Comes with Tax Implications: A Guide to Understanding the Consequences
