The New Capital Gain Formula: More Choice, More Confusion
[Query 1]
I have read in your earlier column regarding the computation of capital gains where an old property (acquired before 23rd July 2024) is sold. In such a case, the capital gain tax cannot exceed the lower of tax computed at 12.50% without indexation & tax computed @ 20% after indexation. I sold a residential flat in June 2026 which I had purchased in 2011 by availing a housing loan. Kindly let me know the Cost Inflation Index (CII) for FY 2026-27 as I am unable to find it. Whether the interest paid on the housing loan will also be deducted while computing capital gains? If I invest in Capital Gain Bonds under Section 54EC, which amount will be considered for exemption-the capital gain computed with indexation or without indexation? [ami****@gmail.com]
Opinion:
1. The Finance Act, 2024 has introduced a beneficial tax computation mechanism for resident individuals and HUFs transferring land or building acquired before 23rdJuly 2024. In such cases, the tax payable shall not exceed the lower of:
(i) 12.50% of the long-term capital gain computed without indexation, or
(ii) 20% of the long-term capital gain computed after indexation.
This comparative computation is intended to ensure that taxpayers are not adversely affected by the withdrawal of indexation benefit.
Capital gain taxation today resembles a two-route GPS. One route follows indexation, the other skips it. The law itself tells you to take whichever route leads to the lower tax bill. But unless you calculate both routes, you may never know which one gets you to your destination cheaper.
2. Coming to your first query, the Cost Inflation Index (CII) for FY 2026-27 has not yet been notified by the CBDT. As and when the notification is issued, the indexed computation can be worked out by applying the notified CII for FY 2026-27.
3. As regards the housing loan interest, there has been an important amendment in the law. Earlier, certain judicial decisions had permitted taxpayers to claim a double benefit by first claiming deduction of the housing loan interest while computing income from house property and then again treating the entire interest as part of the cost of acquisition while computing capital gains. To nullify this position, the Finance Act, 2023 inserted a proviso to Section 48 to provide that interest in respect of which deduction has already been claimed under the Income-tax Act shall not again form part of the cost of acquisition or cost of improvement.
However, the amendment merely prohibits a double deduction. It does not expressly deal with a situation where the housing loan interest has never been claimed as deduction under any other provision of the Income-tax Act. In such cases, there are reasonable grounds to contend that the unclaimed interest may still qualify as part of the cost of acquisition. However, the issue is not free from doubt and may remain a subject matter of litigation until suitable legislative or judicial clarity emerges.
4. Regarding your last query, the exemption under Section 54ECis available with reference to the amount of long-term capital gain invested in the specified bonds, subject to the monetary ceiling prescribed under the Act. The comparison between tax at 12.50% without indexation and 20% with indexation is only a mechanism for determining the final tax liability. It does not create two different capital gains for the purpose of Section 54EC. The exemption under Section 54EC will be governed by the normal provisions of the section i.e., it will be on the basis of the LTCG computed without indexation only.
[Query 2]
I am a senior citizen. Last year, I filed my Income Tax Return under the Old Tax Regime (OTR) and paid the tax accordingly. I have now realised that I would have paid a lower tax under the New Tax Regime (NTR). Can I revise my return now, opt for the New Tax Regime and claim the refund of excess tax paid? [n_premkumar@hotmail.com]
Opinion:
1. If a taxpayer does not have any income from business or profession, he enjoys complete flexibility to move from one regime to the other every year (subject to exercising the option in the return of income itself), without the need for any separate declaration. In other words, there is virtually a “free entry and free exit” between the two tax regimes. A change of tax regime after filing the original return can be made only by filing a revised return under Section 139(5). Such revised return can be furnished only up to the end of the relevant assessment yearor before completion of assessment, whichever is earlier.
2. In your query, you have mentioned that the return was filed in the last financial year. This indicates that the time limit for filing a revised return has already expired. Once the statutory period for revision is over, the option to alter the tax regime through a revised return also comes to an end. Consequently, even if the New Tax Regime would have resulted in a lower tax liability, the refund cannot now be claimed by changing the regime.
Had the time limit for filing the revised return still been available, and provided you did not have any business or professional income, you could have switched from the Old Tax Regime to the New Tax Regime and claimed the consequential refund, if any.
Remember, in taxation, the law usually gives you choices—but not forever. Missing a tax deadline is a little like missing a train; knowing the correct platform later doesn’t help much.
3. The moral of the story? Never let your tax regime be a matter of habit. Spend five extra minutes comparing both regimes before clicking the ‘Submit’ button. Those five minutes can sometimes be worth thousands of rupees.
Reader’s Note: Although the Income-tax Act, 2025 has come into force with effect from 1st April 2026, this column continues to refer to the section numbers of the erstwhile Income-tax Act, 1961 for the convenience of readers. On the issues discussed herein, the substantive legal provisions remain largely unchanged and only the section numbers have been renumbered, unless specifically stated otherwise.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
