Capital Gains Budget Impact: Ultimate Guide to Tax on Property

Capital Gains: Did you know that the recent 2024 budget has significantly changed the capital gains tax on property sales in India? This could impact your real estate investments more than you think!

The important change in capital gains tax rates in Budget 2024

Budget 2024, There was an important change in capital gains tax rates in Budget 2024. The most discussed capital gain taxation of property was because indexation was removed. The tax rate was increased to 12.5%, but every person discussed it a lot due to the removal of indexation.

I was writing about this. Now the Finance Bill had to go for approval, now in between because there was a lot of opposition to this. So an amendment has been proposed for the removal of this indexation for property which will be discussed with you in this article.

Proposed Capital Gains Tax on Property – Amendment

Here, I have a screenshot of the amendment, which has been made specifically for Land and Buildings in section 112. First, let us understand the changes in our tax rates. There is a section for long-term capital gains 112, which is about assets other than listed shares, within this, we have two scenarios before 23rd July and after 23rd July 2024. What was the rate before in 112 was 20% with indexation here.

But it became 12.5% without indexation. This removal of indexation is the root of the whole problem because this is the person suffering loss. Everyone calculated and saw that, now if I sell the property I have bought for what amount will I sell it then what will I get?

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Everyone is incurring a loss and when they calculate. There was a lot of opposition due to which an amendment was proposed in section 112. Now you will get a provision in our Finance Act. is going to be approval soon as a provision has been added to it. It is important.

You need to read this provision carefully “Provided further that in the case of transfer of long term Capital Assets, being land or building or both, which is acquired before 23rd July 2024, where the income tax computed under item (B) exceeds the income tax computed under the provisions of this Act. as they stood immediately before the amendment by the Finance (No.2) Act. 2024. Such excess shall be ignored”

Scenario of Capital Gains On Property Sale

Understand the example above, I have given four examples here, and wherever I mention the Old Tax Regime i.e. this is the scenario before 23rd July 2024, and whenever the New Tax Regime has been mentioned, it is the scenario after 23rd July 2024.

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Scenario 1:

Supposed Mr. XYZ has a property whose purchase value was Rs.30 Lakhs Only in 2024. He wants to sell it for Rs.75 Lakhs in 2024. If you examine the example, we will just change the dates like in the first case. If Mr. XYZ acquired this property on 1st April 2001, then in this case, we will have to take indexation of 2001 i.e. 100 (CII) and Mr. XYZ selling it in 2024. So we will use the cost of inflation index of 2024-2025. If we apply the index cost to it then the purchase value of Rs. 30 lakhs is Rs. 1,08,90,000/-

Now let us see both scenarios, in the new tax regime, it is simply its sale price of Rs. 75 Lakhs from directly minus its purchase price. After deducting Mr. XYZ’s capital Gains of Rs. 45 Lakhs and on this directly he has to pay 12.50% tax on it, which is Rs.. 5,62,5000/.

Now we apply indexation here, then the property cost will be Rs.1,08,90,000/-. It is more than the actual sale value and raises the capital loss. So, this is why Mr. XYZ has no tax to pay. So this is what has been said after the amendment, now the tax that is coming to you is access tax, you ignore it that means here. The paid person will not have to pay any tax because, in our old scenario, the tax is becoming zero.

Scenario 2:

Example 2: Now if he sells the property bought in 2009, then in that case, the old tax regime will be beneficial for Mr. XYZ. Further

Scenario 3 and 4:

If Mr. XYZ purchases the property in 2018 and 2021, then Mr. XYZ will benefit from the New Tax Regime. (As shown in the example). In that case, the capital gain is raised after indexation, and tax liability is also raised, which is more than the New Tax Regime. So Mr. XYZ goes with his benefited regime which is New Tax Regime.

Now you can check the examples and calculate yourself, and see these are our changes according to the Cost of Inflation Index (CII) purchase year. All other things are similar but if you calculate and check, where you are getting the benefits accordingly.

Check CII for this year: Cost of Inflation Index for 2024-2025 circulated by CBDT

This amendment has now been proposed in the budget as soon as this is approved by the Finance Act. It is a very important amendment for every taxpayer.

Final Thoughts on Capital Gains Tax On Property

The proposed amendment in the Budget 2024 is crucial for taxpayers, particularly those who own property acquired before 23rd July 2024. The removal of indexation led to increased tax burdens, but this amendment seeks to provide relief by allowing taxpayers to ignore the excess tax computed under the new regime. If it exceeds what would have been paid under the old regime.

This change, once approved, will be a significant win for property owners and a step towards a more equitable tax system.

FAQs on Capital Gains Tax On Property

1. What is indexation?
Indexation is a method used to adjust the purchase price of an asset for inflation, reducing the capital gains and, consequently, the tax liability.

2. Why was there opposition to the removal of indexation?
The removal of indexation increased the taxable capital gains on property, leading to higher tax liabilities and financial losses for property sellers.

3. How does the proposed amendment benefit taxpayers?
The amendment allows taxpayers to ignore any excess tax calculated under the new regime if it exceeds what they would have paid under the old regime, effectively reducing their tax liability.

4. When will this amendment be effective?
The amendment will be effective once the Finance Bill is approved. Providing immediate relief to taxpayers who sell property acquired before 23rd July 2024.

5. Should I wait to sell my property until this amendment is approved?
If your property was acquired before 23rd July 2024 and you are facing a higher tax burden due to the removal of indexation. it may be beneficial to wait until the amendment is approved. However, it is advisable to consult with a tax professional for personalized advice.

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