The property indexation choice, worked through

Property bought before Budget 2024’s cutoff is the one asset that still gets a genuine choice at sale time: pay 12.5% on the plain nominal gain, or 20% on a smaller, inflation-adjusted gain. Which one actually costs less isn’t obvious from the rates alone — it depends entirely on how the property’s price grew relative to inflation over the holding period.

How the choice actually works

Indexation adjusts the original purchase price upward using the Cost Inflation Index (CII), a number published for each financial year that tracks general inflation. The adjusted — or “indexed” — cost is the purchase price multiplied by the ratio of the sale year’s CII to the purchase year’s CII. Since that indexed cost is almost always higher than the original price, the taxable gain calculated against it shrinks — but it’s then taxed at a higher 20% rate instead of 12.5%. Which of those two effects wins depends on how much of the property’s price growth was really just inflation catching up, versus genuine appreciation above and beyond it.

The same nominal gain, opposite outcomes

Two properties, both sold in 2026-27 (CII 384) with the identical ₹1,00,00,000 nominal gain — only the purchase year and price differ.

The pattern behind when indexation wins

The difference between the two properties comes down to how much of the price growth inflation alone would explain. Property A’s price grew roughly 6× over 21 years, while the CII itself grew about 3.3× over the same stretch — a meaningful share of that gain was just prices catching up with inflation, which indexation strips out before taxing. Property B’s price tripled in 8 years, while the CII moved barely 1.4× — almost all of that gain was genuine appreciation, which indexation does very little to shrink, leaving the higher 20% rate to apply to almost the full amount.

As a rough guide: longer holding periods and more modest, inflation-tracking price growth tend to favour indexation; shorter holding periods with sharp appreciation tend to favour the flat 12.5% rate instead. Since the actual numbers depend entirely on the specific purchase year, sale year, and prices involved, working through both options with the real figures — rather than assuming either one always wins — is the only reliable way to know which applies.