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The 2024 Budget – Elimination of Index Benefits & Its Impact on Property Sales

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The 2024 Budget – Elimination of Index Benefits & Its Impact on Property Sales

The 2024 budget is out and it has impacted the real estate industry. The 2024 budget declared the elimination of the indexation advantage provided on the sale of property. As a result, many people who sell their home will be unable to inflate the acquisition price and therefore lower their capital gains. Prior to the announcement, long-term capital gains from the sale of property were taxed at 20% with an indexation benefit. According to the Budget papers, the new LTCG tax rate of 12.5%, without indexation benefit, will apply to capital gains on property sales. 

Real estate budget 2024 declared the elimination of the indexation advantage provided on the sale of property. As a result, many people who sell their home will be unable to inflate the acquisition price and therefore lower their capital gains. Prior to the announcement, long-term capital gains from the sale of property were taxed at 20% with an indexation benefit. According to the Budget papers, the new LTCG tax rate of 12.5%, without indexation benefit, will apply to capital gains on property sales. 

What is the Cost Inflation Index?

Every fiscal year, the income tax department produces the Cost Inflation Index (CII), which is used to calculate indexation benefits. This value is used to calculate the inflation-adjusted cost of a long-term capital asset. To calculate the taxable capital gain, subtract the inflation-adjusted acquisition cost from the asset’s sale price. However, indexation benefits are only available for certain assets.

The Central Board of Direct Taxes (CBDT) has announced that the CII for the current fiscal year 2024-25 (AY 2025-26) is 363. The notice was given on May 24, 2024. The CII number for fiscal year 2023-24 (year 2024-25) was 348.

When submitting income tax returns, use CII 348 to calculate the inflation-adjusted purchase price of certain assets sold between April 1, 2023 and March 31, 2024. The next year, CII 363 will be used to calculate the inflation-adjusted purchase price of assets sold during the current fiscal year 2024-25 (AY 2025-26) – from April 1, 2024 to March 31, 2025.