Nagpur: In the latest budget announcement, significant changes have been made to the capital gains tax, affecting those who have invested or plan to invest in property or the stock market. Finance Minister Nirmala Sitharaman has introduced major changes to the capital gains tax rules, particularly impacting real estate transactions by removing the indexation benefit.
Key Changes in Capital Gains Tax:
– Long-Term Capital Gains Tax (LTCG): The LTCG on property sales has been reduced from 20% to 12.5%.
– Definition of Long-Term**: Listed financial assets like shares and mutual funds will be considered long-term investments if held for one year or more. Unlisted financial or non-financial assets will be considered long-term if held for two years or more.
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Saturday18 Jan. 2025
Impact on Property Sellers
The removal of the indexation benefit is a significant change that could adversely affect property sellers. While the reduction in LTCG tax may seem beneficial at first glance, the elimination of the indexation benefit complicates the situation.
Understanding the Indexation Benefit
Previously, the indexation benefit adjusted the purchase price of property according to inflation, reducing the taxable amount. For instance, if a property bought for ₹50 lakhs ten years ago is now worth ₹2 crores, the indexed value (considering inflation) might be ₹1.25 crores. Tax would then be calculated on the ₹75 lakhs gain, resulting in a 20% tax on this amount.
With the indexation benefit removed, the entire gain would now be taxable at 12.5%, potentially leading to higher taxes despite the lower rate.
These changes in the budget aim to streamline and simplify tax regulations but might create challenges for property investors and sellers.
