Property Taxpayers Face Dilemma: Indexation or 12.5% Tax on Capital Gains for ITR 2026 Filings
Tax Implications for Homeowners Selling Properties
A homeowner who sold a flat in December 2025 for Rs 1.50 crore, acquired in April 2021 for Rs. 1.05 crore, is undecided whether to invest capital gains in capital gains bonds or pay taxes. The Ask Wallet-Wise initiative offers expert advice on personal finance and money-related queries.
Taxation of Capital Gains
The taxation of capital gains has undergone significant changes. The benefit of indexation has been removed for all long-term capital gain computation provisions, except for the limit purpose of computing the tax payable in respect of long-term capital gains arising from the sale of land and building by a resident individual and an HUF.
Long-Term Capital Gains Calculation
Since the house has been sold after 24 months, the profits will be taxed as long-term capital gains. The capital gains are to be computed by reducing the cost of acquisition as increased by the cost of improvement, if any, from the sale price realised. The cost of acquisition of the house bought in 2021 for Rs 1.05 crores is Rs 1,24,54,259, as calculated using the cost inflation index for the financial year 2021-2022 (317) and 2025-2026 (376).
Comparison of Tax Options
| Option | Indexed Profits | Tax Rate | Tax Liability |
|---|---|---|---|
| Indexed Long-Term Capital Gains | Rs 25,45,741 | 20% | Rs 5,09,148 |
| Unindexed Long-Term Capital Gains | Rs 45 lakhs | 12.50% | Rs 5,62,500 |
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Tax Implications
Section 112 of the Income Tax Act 1961 provides for the rate at which long-term capital gains will be taxed. A resident individual or an HUF have options to pay tax on long-term capital gains arising from the transfer of a land or building acquired prior to July 23, 2024, either at 12.50% on unindexed long-term capital gains or at 20% of the indexed long-term capital gains. In this case, the tax on indexed profits is lower than on unindexed profits, making it the preferred option.
Conclusion
The homeowner should opt for paying tax on indexed long-term capital gains, which amounts to Rs 5,09,148, instead of investing the plain long-term capital gains in capital gain bonds.
Investor Takeaway
Consider the tax implications before deciding whether to invest in capital gains bonds or pay taxes on property sales.
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