Loss on sale of residential flat after indexing allowed or not

The utility behavior is intentional and legally sound. Indexation for property acquired before July 23, 2024, can only be used to lower tax liability on gains, not to generate or set off an indexed loss against other taxable capital gains.

The expert and the ITR-3 utility are both correct. Here is the legal basis:

The Finance (No. 2) Act 2024, effective July 23, 2024, changed how indexation works for property.

For property acquired BEFORE July 23, 2024 (like your client from April 2008), the taxpayer can choose between:
- 20% with indexation (old method), or
- 12.5% without indexation (new method)

But there is a critical limit: indexation can only reduce a gain to zero. It CANNOT create a notional loss for set-off or carry-forward. If the indexed acquisition cost exceeds the sale price, the outcome is treated as NIL GAIN, not a deductible loss.

So the ITR-3 blocking the set-off is intentional. The CBDT position is that allowing indexed losses would let taxpayers artificially manufacture losses to set off against other gains, which is not the intent of the regime.

Your client has no tax liability (nil gain), but also has no loss to carry forward or set off.

This [CII indexation and LTCG guide](https://taxgarden.in/blog/cost-inflation-index-cii-table-formula-indexation-capital-gains) has the AY 2026-27 CII table and the July 23 regime transition rules.