Indexation Explained: How to Slash Your Property Tax Legally

What is Indexation?

Indexation is a tax-saving technique that adjusts your property’s purchase price for inflation when calculating capital gains. Why? To ensure you don’t pay tax on “paper profits” caused by rising prices over time.

In simple terms:
Actual Profit = Selling Price – (Purchase Price × Inflation Factor)

Why Indexation Matters in India

• Inflation Impact: ₹10L in 2010 ≠ ₹10L in 2024 (₹10L then ≈ ₹25L now!).

• Tax Fairness: Prevents you from paying tax on “fake” profits.

• Legal Benefit: Approved under Section 48 of Income Tax Act.

How Indexation Works: 4 Simple Steps

(Example: Bought land in 2010 for ₹20L, sold in 2024 for ₹80L)

1. Find Cost Inflation Index (CII):

   • CII for Purchase Year (2010): 167

   • CII for Sale Year (2024): 363
     (Source: Income Tax Dept. Notifications)

2. Calculate Indexed Cost:

   Indexed Cost = Purchase Price × (CII Sale Year / CII Purchase Year)  
                = 20,00,000 × (363 / 167)  
                = ₹43.47 Lakhs

3. Determine Taxable Gain:

   Capital Gain = Selling Price – Indexed Cost  
                = 80,00,000 – 43,47,000  
                = ₹36.53 Lakhs

4. Pay Tax:

   • Without Indexation: Tax on ₹60L profit (₹80L – ₹20L)!

   • With Indexation: Tax on ₹36.53L only (saves ~40% tax!).

Cost Inflation Index (CII) for Key Years

Tax Savings: With vs. Without Indexation

Eligible Assets for Indexation

1. Real Estate (Residential/Commercial property, land)

2. Debt Mutual Funds

3. Gold Bonds

4. Unlisted Shares (Held > 24 months)

❌ Not Eligible: Stocks, Equity Mutual Funds.

5 Rules for Claiming Indexation

1. Holding Period: Asset held > 24 months (long-term).

2. Documentation: Preserve purchase/sale agreements, payment proofs.

3. CII Accuracy: Use official IT Dept. indices (see table above).

4. Expenses Adjustment: Add registration/improvement costs to purchase price.

5. Transfer Timing: Indexation applies only on sale/transfer.

Common Mistakes to Avoid

• Using Wrong CII: Confirm FY start/end dates (e.g., FY 2024-25 = CII 363).

• Ignoring Improvement Costs: Renovation expenses increase indexed cost base.

• Missing Deadlines: File ITR by July 31 to claim benefits.

Pro Tips for Property Investors

• Hold Long-Term: 24+ months unlocks indexation benefits.

• Reinvest Gains: Save tax further under Section 54/54F by buying new property.

• NRI Advantage: Indexation applies even if you’re overseas!

Maximize Savings with Mrittikaland!

Buying land? Our experts help:
✅ Legal Verification
✅ Tax-Smart Investment Plans
✅ RERA-Compliant Projects

Free Indexation Calculator:
📱 www.mrittikaland.in/indexation-tool

“Inflation eats your money. Indexation lets inflation eat your tax!” 💸