How Home Loan Interest Affects Your Capital Gains Tax
Selling a property in India? If you took a home loan, unclaimed interest may increase your cost of acquisition, reducing your taxable capital gains. However, the method of indexation remains a debated topic.
Latest Capital Gains Tax Rules (Effective 23 July 2024)
The government has introduced key changes:
- No indexation for computing general capital gains.
- Indexation available for immovable properties bought before 23 July 2024.
- Tax rate options:
- 12.5% tax without indexation.
- 20% tax with indexation.
Should You Claim Indexation from the Year of Loan Payment or Acquisition?
| Payment Type | Indexation Begins |
| Full payment upfront | Year of acquisition |
| Loan-based payment | Year of EMI payment |
Since home loan interest is paid over the years, claiming indexation from the payment year may prevent legal issues.
Did You Know?
Indexation is based on Cost Inflation Index (CII), which adjusts the purchase price for inflation, reducing taxable gains.