Taxpayer to pay only Rs 33,000 income tax after selling a house for Rs 70 lakh; ITAT Mumbai ruling explained

An individual taxpayer found himself in trouble with the income tax department after he calculated his income tax payable as just Rs 33,296 for long term capital gains (LTCG) income of Rs 1.6 lakh, even though he sold his property for Rs 70 lakh, which he acquired five years ago for Rs 36 lakh. The income tax assessing officer (AO) argued that he is liable to pay tax on long term capital gains (LTCG) income of Rs 17 lakh and the dispute resolution panel (DRP) agreed with him.

However, the Income Tax Appellate Tribunal (ITAT) (Mumbai) had a different opinion and ruled in favour of the taxpayer, taking into account the year when he made the substantial payment for acquiring this property and the benefits of indexation.

Indexation is the technical term which refers to giving effect for inflation in a particular transaction. By applying indexation benefits, the cost price of your asset is increased to reflect the effect of inflation over the given time period. This means that the resultant capital gains (sale price minus cost price) are reduced, leading to lower net income tax payable on such capital gains.

The reason why this tax dispute started is because this taxpayer entered into an agreement with the builder to buy this property in FY 2007-08 but got its possession in FY 2010-11. So, the income tax department by using this logic said that he should get the indexation benefit from FY 2010-11 and accordingly, long-term capital gain should be computed at Rs 17 lakh. The taxpayer argued that the indexation benefits for this property sale should actually be calculated from FY 2007-08 and so his LTCG should be only Rs 1.6 lakh.

The taxpayer’s lawyers said: “… more than 50% i.e. 64.85% of total cost was paid till FY 2007-08. …the assessee (taxpayer) got the right to hold the asset from the date of "Agreement to Sale" in January 2007 (FY 2007-08), therefore the indexation should commence from that year.”

ITAT Mumbai said that since he paid more than 50% of the money to the builder to acquire this property in FY 2007-08, the precedent from a similar ITAT Mumbai judgement (ITA 851/Mum/2025) will apply to this case, indicating that his capital gains calculation (Rs 1.6 lakh LTCG) might be accurate.

In the case discussed in this article, if the taxpayer applied the indexation number from FY 2007-08, his long-term capital gains (LTCG) would amount to Rs 1,66,482. However, if he used the tax department’s indexation number from FY 2010-11, his LTCG comes to Rs 17 lakh, resulting in a difference of Rs 15 lakh. This is the reason why this taxpayer challenged the tax department’s order and ultimately won in ITAT Mumbai.

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Keep reading to find out how this taxpayer won the case in ITAT Mumbai.

How did this case start?

According to the order of ITAT Mumbai dated June 23, 2025, here’s a timeline of events:

• FY 2007-08: This taxpayer who was a non-resident individual (NRI) purchased a property in Mumbai and signed a sale agreement with the builder for Rs 36 lakh (36,77,020)
• FY 2010-11: This taxpayer got possession of the property.
• FY 2014-15: He sold this property for Rs 70 lakh.
• April 26, 2022: The tax department re-opened his file under Section 147 and issued him a Section 148 notice. The tax department alleged there was an escapement of assessment of income to the tune of Rs 74,18,194 during the year under consideration (FY 2014-15).
• May 28, 2022: In response to this notice, he filed an ITR for AY 2015-16 declaring his total income as Rs 1,54,700.
• October 3, 2022: He was issued a notice under Section 142 (1) of the Income Tax Act, 1961 along with questionnaire was issued and asked to file the entire details of all immovable properties, copy of agreement of purchase/sale of property, details of payments for purchase of property, details of payments received on sale of immovable property, details of payment of credit card bill, etc.
• October 17, 2022: He did not give a reply to this notice. The tax department issued him a penalty notice under Section 274 read with Section 272(1)(b).
• November 14, 2022: He submitted a copy of account statement of Union Bank, copy of passport, acknowledgement of ITR filed in response to the notice under Section 148 along with computation of income, bank account statement of Corporation bank, reply letter, index-II of the property purchased in 2007.
• August 26, 2023: A notice under Section 142(1) was issued to him requesting to submit details of property sold along with working of LTCG, details of property purchased, etc.
• September 13, 2023: In response to the notice, he submitted his reply along with all necessary documents as called for.
• November 22, 2023: The reply of the assessee (taxpayer) was not found tenable on the ground that assessee had made a purchase agreement in January 2007, but the possession to the property was given in December 2010. Hence, the assessee was eligible to claim indexation from F.Y. 2010 only.
• December 17, 2023: The tax department issued an order for this revised calculation for his LTCG income.
• June 23, 2025: Taxpayer wins case in ITAT Mumbai.

The taxpayer filed an appeal against this order with the dispute resolution panel (DRP) and lost the case. He then filed an appeal in ITAT Mumbai, where he won the case.

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What did ITAT Mumbai say about this property sale transaction?

Judicial Member, Raj Kumar Chauhan of ITAT Mumbai, said:

• “…we have examined the documents including the agreement for sale dated 16th November 2007 and at page 4 in clause 2, the flat has been identified as Flat No. B-707, 7th floor and it is mentioned: “The purchaser hereby agrees to purchase and acquire Flat B-707, 7th floor, measuring 65 Sq.mtr built up area of the said unit in the said building…being constructed on the said property, for a total considering of Rs. 34,57,000/,”.
• Clause 3 of the agreement to sale has given the schedule of payment. As per the payment made find mentioned in the written arguments and reproduced by us in para no. 9 of this order shows that the substantial amount has been paid in FY 2007-08. It was submitted that 64.85% of the total cost was already paid till FY 2007-08.
• Therefore, respectfully following the judgment of the Jurisdictional Tribunal in Anand Swarup Mehta vs. ITO in ITA 851/Mum/2025 (supra), we are of the considered opinion that the assessee /appellant has got the right to hold the asset from the date of ‘agreement to sale’ dated 16th November 2007 (FY 2007-08) and the arguments of the Ld. AR on behalf of the assessee are therefore cogent and convincing wherein he has argued that the indexation benefit should start from FY 2007-08.
• Thus, the assessee has justified his claim of considering the date of acquisition of the asset for the purpose of computation of capital gain from the date of agreement for sale dated 16th November 2007 and not from the letter of possession dated 16th December 2010 as has been proposed in the assessment order.

Judgement: “For the above discussion and the reasons mentioned therein, the Ground No. 2, 3 & 4 are allowed in favour of the assessee. We accordingly direct the AO to consider the date of acquisition for the purpose of computation of capital gain as the date of agreement for sale dated 16th November 2007 and compute the capital gains accordingly for the concerned AY 2015-16.”

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Due to this judgement this taxpayer saved LTCG of Rs 15 lakh

Sanjoli Maheshwari, Executive Director, Nangia & Co LLP, says: “In case the tax department’s contention was accepted, the indexation benefit would be considered from FY 2010-11 and accordingly, long-term capital gain will be computed at Rs 17,04,264 instead of Rs 1,66,482.”

Chartered Accountant (Dr.) Suresh Surana shares a table showing how the amount of capital gain has arrived by applying indexation from FY 2007-08, along with a comparison to what the LTCG and tax would have been if the tax department's position (indexation from FY 2010–11) had been accepted:

Particulars	Taxpayer's claim (Indexation from FY 2007–08)	Tax Department's claim (Indexation from FY 2010–11)
Sale Consideration	Rs 70,00,000	Rs 70,00,000
Cost of Acquisition	Rs 36,77,020	Rs 36,77,020
CII for Acquisition Year	551 (FY 2007–08)	711 (FY 2010–11)
CII for Sale Year	1024 (FY 2014–15)	1024 (FY 2014–15)
Indexed Cost of Acquisition	Rs 68,33,518 [Rs 36,77,020 x (1024 / 551)]	Rs 52,95,736 [Rs. 36,77,020 x (1024 / 711)]
LTCG	Rs 1,66,482 (Rs 70,00,000 – Rs 68,33,518)	Rs 17,04,264 (Rs 70,00,000 – Rs 52,95,736)
LTCG Tax @ 20%	Rs 33,296 (Rs 1,66,482 × 20%)	Rs 3,40,853 (Rs 17,04,264 × 20%)

Source: CA (Dr.) Suresh Surana

Note - The calculations have been performed using the Cost Inflation Index from FY 1981-82 framework. The figures presented consider only the applicable tax rates for the transfer of a long-term capital asset, specifically land and building. Surcharge and Health & Education Cess have not been included in the above computation.

What might be the judgement’s impact in the present AY 2025-26 scenario?

ET Wealth Online reached out to various experts about the impact of this judgement for AY 2025-26; here’s what they said:

Sanjoli Maheshwari, Executive Director, Nangia & Co LLP, says: The said judgement has followed the well-established principle affirmed by Supreme Court and various courts that the relevant date for determining holding period and indexation is the date of agreement to sell and not the date of possession from which a legally enforceable right vests with the allottee/purchaser on the said property. Merely, possession delivered later does not detract from the fact that the allottee/purchaser was conferred right to hold the said property on issuance of allotment letter.

As regards AY 2025-26, it would be pertinent to note that the Finance (No. 2) Act, 2024 introduced a significant change relating to taxation of LTCG on immovable property (land or building or both), effective from July 23, 2024 whereby it allows resident individuals to compute tax on LTCG arising from the properties acquired before July 23, 2024, at 20% with indexation or 12.5% without indexation whichever is more beneficial to them.

However, the said relaxation is not extended to Non-Residents Individuals (NRIs). Thus, the aforesaid judgment will not hold significance in case of non-residents selling their properties effective July 23, 2024, considering no indexation benefit would be available on the properties acquired before July 23, 2024 and long-term capital gain would be taxed at 12.5%.

However, the same would be relevant for NRIs while filing tax returns for AY 2025-26 (i.e. wherein the transfer of immovable properties takes place during the period April 1, 2024 and before July 23, 2024) as well as ongoing assessments and litigations pertaining to earlier years, wherein the said judgement can be relied upon and indexation benefit can be considered from the date of allotment letter and not from the date of possession.

Chartered Accountant Hardik Mehta, Hardik D Mehta & Co., says: “Possession of a property is not the decisive factor for determining its date of acquisition from the point of view of indexation benefit. In a recent ruling, the Mumbai Tribunal clarified that where registration and substantial payments are made in an earlier year, the benefit of indexation should flow from the point of payment and registration, irrespective of when possession is handed over. This is a significant relief for taxpayers, especially given that most premium under-construction projects involve staggered possession timelines, while the bulk of payments are made upfront."

"The ruling is also timely—with the return filing due date for assessment year 2025-2026 having been extended to September 15, 2025. Taxpayers selling properties in financial year 2024-25 must carefully evaluate whether claiming indexation from the year of payment, rather than possession, offers a more beneficial tax outcome.”

Chartered Accountant Dinesh K. Jain, Founding Partner - Dinesh Aarjav & Associates, says: "The Tribunal’s decision is both legally sound and equitable. It is consistent with established judicial precedents such as Sanjeev Lal v. CIT and PCIT v. Vembu Vaidyanathan, which have held that legal rights in a capital asset are conferred from the date of a registered agreement coupled with substantial payment, not merely from the date of possession."

"From a tax policy perspective, once a taxpayer has parted with significant consideration, their economic investment in the property effectively commences. Accordingly, it is only just that the benefit of indexation—intended precisely to neutralize the effect of inflation over the period of real investment—be granted from that date. Denying such benefit would be inequitable, as it would ignore the very period during which the taxpayer’s funds have been locked into the asset."

Impact in AY 2025–26: "In the current regime, however, the practical impact is more circumscribed. For Non-Resident, transfers effected on or after 23rd July 2024 attract a flat 12.5% LTCG rate without indexation, rendering the ruling of limited relevance except in respect of pre–23rd July 2024 sale transactions. For resident taxpayers, both options continue to co-exist—20% with indexation or 12.5% without indexation—making the Tribunal’s reasoning far more pertinent for domestic cases where indexation computations remain live in respect of properties acquired before 23rd July 2024."

"Nevertheless, the date of acquisition continues to be critical since it determines whether the gain is short-term or long-term. This ruling reinforces that the two-year holding period for immovable property should be reckoned from the date of agreement and substantial payment and not from possession date."

Chartered Accountant (Dr.) Suresh Surana, says: “The Mumbai ITAT’s decision in case of Braj Kishore Singh is a well-reasoned and progressive interpretation of tax law, particularly concerning the computation of LTCG on immovable property. The tribunal rightly emphasized substantive ownership determined by the date of allotment or agreement to sell over mere legal possession or registration. This approach reflects the economic reality of property transactions and provides greater tax certainty, especially in cases involving long gestation periods between payment and possession.”

This ruling has certain key implications which are as follows:

● Enhanced Indexation Benefit for Property Sellers - “Taxpayers selling property in FY 2025–26 and onwards can claim indexation from the date of the agreement or allotment, rather than from possession or registration. This will significantly reduce the hardships of the taxpayers, especially where there’s a long gap between agreement date, payment and possession.”

“Even with the introduction of a 12.5% LTCG tax rate without indexation benefit under the Finance (No.2) Act 2024, this development remains crucial. For properties acquired before 23rd July 2024, taxpayers still have the option to be taxed at the existing 20% rate with indexation. In such cases, the ability to apply indexation from an earlier date may result in a more favourable tax outcome, making this ruling a valuable opportunity for property sellers to optimize their capital gains tax liability.”

● Alignment of Tax Benefits with Investment Realities - : “The recent decision holds particular significance for transactions involving under-construction properties, where project delays are a common occurrence. By aligning tax benefits with the actual economic timeline of property investment, the ruling offers a more realistic and equitable framework for taxpayers.”

● Importance of Proper Documentation - : “The ITAT’s judgement regarding treatment of amenity-related expenditure underscores the importance of maintaining comprehensive documentation for all associated payments. This ensures that taxpayers can fully leverage allowable deductions under the Capital Gains provisions, thereby optimizing their tax positions.”