Budget 2024: No More Indexation Benefits on Property Sales; LTCG Rate Cut to 12.5%
The budget 2024 has removed the indexation benefit on sale of property, introducing a new LTCG rate of 12.5%. Find out how this impacts property owners and capital gains.
LtcgIndexation BenefitProperty SalesBudget 2024Capital Gains TaxReal Estate MumbaiJul 23, 2024
This change is likely to impact property owners who sell their properties, as they will no longer be able to inflate their purchase price and reduce their capital gains. To understand this better, let's take an example. Suppose Mr. A bought a property for Rs 25 lakh in FY 2002-2003 and sells it for Rs 1 crore in FY 2023-2024. Earlier, the purchase price of Rs 25 lakh would be inflated using the Cost Inflation Index (CII) numbers notified by the Income Tax department. However, with the new rule, there will be no need to inflate the purchase price. The taxpayer will calculate the capital gains by directly reducing the purchase price from the sale price.
The Finance Minister has clarified that properties bought before April 1, 2001, will have to choose the purchase price higher of the actual property price or the fair market value of the house as on April 1, 2001. For properties bought on or after April 1, 2001, the actual purchase price will be used to calculate capital gains.
The Cost Inflation Index (CII) is published by the Income Tax department every fiscal year to calculate indexation benefits. This figure is used to compute the inflation-adjusted cost of a long-term capital asset. The CII number for FY 2023-24 (AY 2024-25) was 348, and for FY 2024-25 (AY 2025-26), it is 363.
The removal of indexation benefit is expected to ease the computation of capital gains for taxpayers and the tax administration. However, it may not be welcome news for property owners who sell their properties and were benefiting from the indexation benefit.
Frequently Asked Questions
What was the earlier tax rate on LTCG from property sales?
The earlier tax rate on LTCG from property sales was 20% with indexation benefit.
What is the new LTCG rate on property sales?
The new LTCG rate on property sales is 12.5% without indexation benefit.
How will the removal of indexation benefit impact property owners?
The removal of indexation benefit will impact property owners who sell their properties, as they will no longer be able to inflate their purchase price and reduce their capital gains.
What is the Cost Inflation Index (CII)?
The Cost Inflation Index (CII) is published by the Income Tax department every fiscal year to calculate indexation benefits. It is used to compute the inflation-adjusted cost of a long-term capital asset.
How will the new rule impact properties bought before April 1, 2001?
Properties bought before April 1, 2001, will have to choose the purchase price higher of the actual property price or the fair market value of the house as on April 1, 2001.
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