Capital Gains Grandfathering
Choose better rate: 20% with indexation or 12.5% without
What is This Hack?
Assets bought before July 23, 2024 can choose between 20% with indexation or 12.5% without indexation for lower tax on long-term gains
How It Works
Budget 2024 (July 23, 2024) changed LTCG tax rules dramatically: removed indexation benefit but reduced tax rate from 20% to 12.5%. This affected ALL assets: property, gold, debt mutual funds, unlisted shares. HOWEVER, the government provided a crucial grandfathering clause for fairness: if you purchased any asset BEFORE July 23, 2024, you can calculate your LTCG tax under BOTH old rules (20% with indexation) and new rules (12.5% without indexation), and choose whichever gives LOWER tax. This is automatic - you just need to do both calculations in your ITR and select the beneficial one. Assets purchased AFTER July 23, 2024 only get 12.5% flat rate (no choice). This applies to property, gold, debt funds - essentially all non-equity assets.
Step-by-Step Implementation
Verify Purchase Date
Check purchase date of asset (property deed date, gold purchase receipt, mutual fund statement). Must be BEFORE July 23, 2024 to qualify for grandfathering choice.
Gather Cost Inflation Index
Download CII chart from Income Tax website. Find CII for: (a) year of purchase, (b) year of sale. CII inflates historical cost to current value.
Calculate Method 1: 20% with Indexation
Indexed Cost = Original Cost × (CII of Sale Year / CII of Purchase Year). LTCG = Sale Price - Indexed Cost. Tax = 20% of LTCG + cess 4% = effective 20.8%.
Calculate Method 2: 12.5% without Indexation
No indexation. LTCG = Sale Price - Original Purchase Cost (actual amount). Tax = 12.5% of LTCG + cess 4% = effective 13%.
Use Calculator for Accuracy
Use our Capital Gains Comprehensive Calculator. It automatically computes both methods and highlights the lower tax option. Accounts for all deductions and exemptions.
File ITR with Lower Tax Method
File ITR-2/ITR-3. In capital gains schedule, select the beneficial method. Attach computation worksheet showing both calculations for transparency and audit trail.
Real Example: Debt Mutual Fund Sale
Situation
Pooja invested ₹10 lakh in debt mutual fund in 2015. She sells in 2025 for ₹18 lakh. CII 2015: 254, CII 2025: 363. Should she choose old or new method?
Without This Hack
Only new method (12.5%): LTCG = ₹18L - ₹10L = ₹8L. Tax = 12.5% = ₹1 lakh + cess = ₹1.04 lakh.
With This Hack
Compare both: Method 1 (20% indexed): Indexed cost = ₹10L × (363/254) = ₹14.3L. LTCG = ₹18L - ₹14.3L = ₹3.7L. Tax = 20% = ₹74K + cess = ₹77K. Method 2 (12.5%): Tax = ₹1.04L. Choose Method 1 (20% indexed) - saves ₹27,000!
💰 ₹27,000 saved by choosing optimal grandfathering method
Common Pitfalls to Avoid
- Only for assets purchased BEFORE July 23, 2024 - recent purchases get 12.5% only
- Once you choose a method in ITR, you cannot change it later - calculate carefully
- Indexation benefits long-term holdings (10+ years) - recent purchases better with 12.5%
- CII values are published annually by govt - use official values only
- Grandfathering applies to ALL non-equity assets: property, gold, debt funds, unlisted shares
- Equity/equity mutual funds have different rules - not covered by this hack
Prerequisites & Requirements
- Asset purchased before July 23, 2024
- Sold after July 23, 2024 (in FY 2024-25 or later)
- Qualifies as long-term capital asset (held 24+ months for property/gold, 36+ months for debt funds before April 2023)
- All purchase and sale documents (deeds, statements, receipts)
- Cost Inflation Index chart
- Calculator or CA for accurate computation
Key Benefits
- Potential savings: ₹2-10 lakhs
- Implementation time: 1 hour
- Legal status: fully legal
- Risk level: low
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