Capital Gains Hackseasylow risk1 hour1 min readUpdated 26 Jul 2026

Capital Gains Grandfathering

Land and building only: pay the lower of 20% indexed or 12.5% unindexed

Potential Savings

₹2-10 lakhs

Time Required

1 hour

Complexity

Easy

Legal Status

Fully legal

applicable toResident Individual/HUF

overview

What is this hack?

This relief is narrower than it is usually described. The second proviso to Section 112(1) applies only to land or building or both acquired before July 23, 2024, and only where the seller is a resident individual or HUF: tax is computed under both the old 20%-with-indexation route and the new 12.5%-without-indexation route, and any excess over the old figure is ignored. It does not extend to shares, mutual funds, gold or unlisted securities, and it is not available to non-residents.

how it works

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. The relief that survives is far narrower. Under the second proviso to Section 112(1), where a resident individual or HUF transfers land or building or both that was acquired before July 23, 2024, the tax is computed both ways and any excess of the 12.5%-without-indexation figure over the pre-amendment 20%-with-indexation figure is ignored. It is a cap on tax, not a free choice, and it cannot be used to claim an indexed loss. It does NOT extend to gold, debt or other mutual fund units, unlisted shares or anything else, and it is not available to a non-resident: Section 112(1)(c) taxes a non-resident's long-term gains at a flat 12.5% for transfers on or after July 23, 2024, with no indexation comparison at all.

steps

Step-by-step guide

01 ·

Verify Purchase Date

Check the acquisition date of the land or building (deed date). It must be BEFORE July 23, 2024, and you must be a resident individual or HUF, for the Section 112(1) cap to apply. Gold and mutual fund units do not qualify however long they were held.

02 ·

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.

03 ·

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%.

04 ·

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%.

05 ·

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.

06 ·

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.

common pitfalls to avoid

Only for land or building or both acquired BEFORE July 23, 2024, and only where the seller is a resident individual or HUF - everything else is a flat 12.5% with no indexation
Indexation benefits long-term holdings (10+ years) - recent purchases better with 12.5%
CII values are published annually by govt - use official values only
Equity shares and equity mutual funds are taxed under Section 112A instead: 12.5% on long-term gains above ₹1.25 lakh, and 20% short-term under Section 111A - not covered by this hack

prerequisites & requirements

Land or building or both acquired before July 23, 2024 by a resident individual or HUF
Sold after July 23, 2024 (in FY 2024-25 or later)
Land or building or both, held 24+ months so the gain is long-term
All purchase and sale documents (deeds, statements, receipts)
Cost Inflation Index chart
Calculator or CA for accurate computation

key benefits