Capital gains on sale of house: the 2024 indexation choice, and the exemption for buying the next one

Selling a house to buy the next one usually begins with one tax question: how much goes to the government? For a house bought before 23 July 2024 the answer now begins with a choice, because the law computes capital gains on sale of house property two ways for resident individuals and lets them pay the lower. A third route, putting the gain into the next home, can make both irrelevant, provided that home is finished in time.

Suresh and Kavita sell in Ahmedabad#

Suresh and Kavita (illustrative, as our stories always are) sold their Ahmedabad home in September 2024, two months after the rules changed, to pay for a retirement flat in a Pune project that was still under construction. Suresh had bought the Ahmedabad house in 2005-06 for Rs 22 lakh, in his own name, and it sold for Rs 1.10 crore. The Pune flat cost Rs 95 lakh, paid in instalments as the building rose, without a loan, and it is in Suresh's sole name too.

Suresh had read the headlines and assumed the tax was now simply 12.5 percent: Rs 11 lakh on an Rs 88 lakh gain. Kavita, a retired bank officer, asked their chartered accountant whether that was the only way to compute it. It was not, and the Pune flat could take the tax to nothing if the building was finished within three years of the sale and whatever was still unpaid to the builder by the return's due date went first into a special bank account. Names and numbers in this story are illustrative.

What the tax is, and what indexation does#

A capital gain on a house is the sale price less the cost, any cost of improvement and the expenses of selling. A house held for more than 24 months gives a long-term gain, and for transfers on or after 23 July 2024 that gain is taxed at 12.5 percent without indexation, replacing 20 percent with indexation. The CBDT's own FAQs on the change said most taxpayers would benefit, but that where a gain was small compared with inflation the benefit would be limited or absent.

So the Finance (No. 2) Bill was amended in August 2024, before it passed: a resident individual or HUF selling land or a building acquired before 23 July 2024 may compute the tax both ways and pay the lower. Since 1 April 2026 the option sits in section 197 of the Income-tax Act, 2025, which replaced section 112 of the 1961 Act. Non-residents, and anyone who acquired the property on or after 23 July 2024, have 12.5 percent only.

Indexation works like comparing your first salary with today's. Rs 22 lakh in 2005 bought far more than it buys now, so indexation restates the old price in today's rupees and taxes only the growth beyond the index. The 12.5 percent route skips the restatement and taxes the whole rise at a lower rate. Less of the gain at a higher rate, or all of it at a lower rate: which is cheaper is arithmetic.

The arithmetic on one sale#

The restating uses the cost inflation index, which the Central Government notifies each year having regard to 75 percent of the average rise in urban consumer prices. It was 117 for 2005-06 and 363 for 2024-25, so Suresh's Rs 22 lakh became an indexed cost of Rs 68.26 lakh.

The indexed route was Rs 2.65 lakh cheaper, because the price had multiplied five times while the index had multiplied 3.1 times; for that purchase year, 12.5 percent would have won only above about 6.6 times. For a sale in 2026-27, with the index at 384, the growth needed falls the more recently the house was bought:

Two published figures show why neither answer can be assumed. RBI's House Price Index for 18 cities, Ahmedabad and Pune among them, rose 4.2 percent in the year to the January to March 2026 quarter, against 3.8 percent a year earlier (RBI, released 29 May 2026), while the index moved from 376 for 2025-26 to 384 for 2026-27. A house that ran a little ahead of the index usually favours indexation; one that ran far ahead favours 12.5 percent.

Putting the gain into the next house#

Section 82 of the Income-tax Act, 2025, formerly section 54, exempts a long-term gain on a residential house where the seller, an individual or HUF, buys one residential house in India within one year before or two years after the sale, or constructs one within three years after it. Only the gain must be invested: if the new house costs at least the gain, none of it is taxed, and if it costs less, the shortfall is. A gain of Rs 2 crore or less may, once in a lifetime, go into two houses, and the cost of a new house above Rs 10 crore does not count.

Two rules catch people. Any part of the gain not yet spent on the new house by the return's due date must be deposited under the Capital Gains Accounts Scheme at an authorised bank, and whatever is still unused when the three years run out is taxed in that year. And if the new house is sold within three years, the exempted gain is deducted from its cost, so the tax comes back.

How the exemption runs through the indexed computation is not spelled out, because the option was written into the rate provision, a point tax practitioners flagged when it was introduced. Suresh's accountant sidestepped it: the flat and the deposit covered the larger, un-indexed gain of Rs 88 lakh, so the claim stood either way. By the due date they had paid the builder Rs 40 lakh; Rs 48 lakh went into the scheme account, and later instalments came from it.

When the next house is still being built#

A flat booked with a builder is paid for over years, so it fits neither purchase nor construction neatly. CBDT treated allotment under the Delhi Development Authority's self-financing scheme as construction (Circular 471, 15 October 1986) and extended that to co-operative societies and other institutions with similar schemes (Circular 672, 16 December 1993); the Kolkata bench of the Income Tax Appellate Tribunal has applied the same reading to a flat allotted by a private developer. As construction, the flat has three years from the sale to be completed.

That puts the builder's delivery date inside your tax position. The Karnataka High Court held in CIT v Sambandam Udaykumar (2012), under the companion exemption for sellers of other assets, that relief could not be denied merely because the house was unfinished within the period when the money had been invested in it. Relying on that means relying on a ruling rather than on the words of the section.

That comparison is where Suresh and Kavita started. Every Maharashtra project's free page on ReraGenie shows its possession timeline, the first promised date against the current one, and each extension with the promoter's stated reason.

Where the house is, and who deducts the tax#

Capital gains are charged under the central Income-tax Act, so the rate is the same in Ahmedabad, Pune or anywhere else in India; what each state sets is the stamp duty on the documents.

The Ahmedabad buyer, paying over Rs 50 lakh to a resident seller, deducted 1 percent, Rs 1.10 lakh, and deposited it against Suresh's PAN, a rule now in section 393(1) of the 2025 Act and set out in TDS on your flat purchase. Suresh claimed it as tax paid, and with the gain exempt, it came back as a refund. A non-resident seller faces a far larger deduction on the whole price, covered in buying from an NRI seller.

Where sellers get it wrong#

Assuming 12.5 percent is the rate for everyone. A resident individual or HUF who bought before 23 July 2024 should compute both.

Waiting for possession to sort out the exemption. The deposit is due by the return's due date, not the handover; miss it and only what you had already paid the builder counts.

Booking a project that cannot finish in three years. The window runs from the sale. A ready flat bought within two years is a purchase and carries no construction risk; under-construction vs ready-to-move prices the rest of that trade.

Selling the new flat within three years. The exempted gain is deducted from its cost, so the tax returns on that sale.

Selling below the government's valuation. Where the stamp duty value exceeds the price by more than 10 percent, the gain is computed on it, under section 78 of the 2025 Act, formerly section 50C; see ready reckoner rates.

What the buyer report shows for this decision#

For a seller carrying an exemption, the question about an under-construction project is whether it will finish inside a tax deadline. The Rs 499 ReraGenie buyer report for a Maharashtra project sets out the possession story, the first promised date against the current one; the project's construction pace against the district; and the promoter's other registrations and how they ended. It does not predict a completion date; it shows what the filings say about the one promised: see the buyer report. If a date slips after you book, your rights on delayed possession run alongside the tax question.

Methodology and sources#

• Cost inflation index: CBDT's index table and Notifications No. 44/2024 (363), No. 70/2025 (376) and No. 85/2026 of 15 July 2026 (384).
• Law: CBDT FAQs on the Union Budget 2024-25 capital gains changes; sections 112, 54 and 50C of the Income-tax Act, 1961; sections 197, 82 and 78 of the Income-tax Act, 2025; CBDT Circulars 471 (1986) and 672 (1993).
• House prices: RBI House Price Index for Q4 2025-26, released 29 May 2026.
• Thresholds: ReraGenie's arithmetic, the growth at which 12.5 percent of the whole gain equals 20 percent of the indexed gain, ignoring sale expenses.

The one-line summary#

Compute the gain both ways if you are a resident who bought before 23 July 2024, pay the lower, and put the gain into the next home to remove the tax altogether, depositing what is unspent by the return's due date and choosing a flat that will be finished within three years of the sale.

This article is educational and not tax advice. Confirm the figures for your own case with a chartered accountant.