Bought a Plot Before July 2024? Here’s How to Pay the Lower Capital Gains Tax in 2026
3 min read
The way long-term capital gains (LTCG) tax works on land changed in 2024, and picking the wrong method can cost you lakhs.
What changed
Earlier, profit on land held for over 24 months was taxed at 20%, but you got indexation. Indexation raises your old purchase price in line with inflation, so your profit on paper becomes smaller and so does your tax.
Since 23 July 2024, the rate on land and buildings has been cut to 12.5%, but indexation has been taken away. Many sellers panicked over losing indexation. But there’s a relief clause. cleartax
The grandfathering clause
If you are a resident individual or HUF, and you bought the land before 23 July 2024 and sell it on or after that date, your tax is the lower of two numbers: 12.5% without indexation, or 20% with indexation. If you bought after that cut-off date, only the 12.5% flat method applies. taxguruoutlookmoney
The new Income Tax Act, 2025 has renumbered the sections but keeps this structure. incorpx
The new Income Tax Act, 2025 has renumbered the sections but keeps this structure. incorpx
The number you need: CII
Indexation uses the Cost Inflation Index. The CBDT has set the CII for FY 2026-27 at 384, up from 376 the year before. ianslive
Indexed cost = Purchase price × (384 ÷ CII of your purchase year)
Two examples, two different winners
Plot A: Bought in FY 2016-17 for ₹20 lakh, sold now for ₹60 lakh.
Method | Taxable gain | Tax |
|---|---|---|
12.5%, no indexation | ₹40,00,000 | ₹5,00,000 |
20%, with indexation (cost becomes ₹29.09 lakh) | ₹30,90,909 | ₹6,18,182 |
Here 12.5% saves you about ₹1.18 lakh.
Plot B: Bought in FY 2006-07 for ₹10 lakh, sold now for ₹40 lakh.
Method | Taxable gain | Tax |
|---|---|---|
12.5%, no indexation | ₹30,00,000 | ₹3,75,000 |
20%, with indexation (cost becomes ₹31.48 lakh) | ₹8,52,459 | ₹1,70,492 |
Here the old method saves you over ₹2 lakh.
So there’s no single right answer. It depends on when you bought and how much the price has grown.
The purchase year matrix (sale in FY 2026-27)
This table shows the break-even point. If your sale price is less than this multiple of your purchase price, 20% with indexation gives lower tax. If it’s more, 12.5% wins.
Purchase year | CII | Break-even multiple |
|---|---|---|
2006-07 | 122 | 6.7x |
2010-11 | 167 | 4.5x |
2014-15 | 240 | 2.6x |
2016-17 | 264 | 2.2x |
2018-19 | 280 | 2.0x |
2020-21 | 301 | 1.7x |
2022-23 | 331 | 1.4x |
Quick read: older plots with moderate appreciation usually favour indexation. Recent plots or plots that have multiplied in value usually favour 12.5%.
A few things to keep in mind
Tax figures above don’t include surcharge and 4% cess.
For land bought before 1 April 2001, you can use its fair market value on that date as your cost.
Registration charges, stamp duty and improvement costs add to your cost and can also be indexed under the old method.
Exemptions like Section 54F or capital gains bonds can bring your tax down further. Speak to your CA before you sign the sale deed.
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