Indexation Benefits Removed for Property Sale: What it Means for Investors
property sale, LTCG rate, real estate and gold, Union Budget, investment
Property SaleLtcg RateReal EstateInvestmentUnion BudgetReal Estate NewsJul 24, 2024
This move will ease the computation of capital gains for the taxpayer and tax administration. However, old real estate investments will continue to get indexation benefits up to the year 2000. This means that if a residential property was purchased in 1975 and is sold now, the seller can avail indexation benefit up to 2000, but not for the remaining 24 years.
Sellers of residential properties can continue to claim exemption under Section 54 of the Income Tax Act. The section provides for an exemption on the long-term capital gains tax from sale of residential property if the proceeds from the sale are used to purchase or construct another residential property.
The new tax rate of 12.5% without indexation benefit may be better or the old tax rate of 20 per cent with indexation. Rough calculations show that if the inflation levels are low and the property price increase is faster, then the new system will work out better for sellers.
Many in the real estate industry and investment advisory space say that with real estate taxation coming at par with long-term capital gains tax of 12.5 per cent on equity investments, investors may sway towards the equity segment, which is relatively far more liquid and has ease of transaction.
Only the salaried class may avoid real estate and switch to equities for ease of transaction and liquidity, after the tax rate for both have come at par. Those dealing in cash and investing large sums in real estate will continue to invest in the same (real estate).
Frequently Asked Questions
What is the new LTCG rate for property sale?
The new LTCG rate for property sale is 12.5% without indexation benefit.
Will old real estate investments still get indexation benefits?
Yes, old real estate investments will continue to get indexation benefits up to the year 2000.
Can sellers of residential properties claim exemption under Section 54 of the IT Act?
Yes, sellers of residential properties can continue to claim exemption under Section 54 of the Income Tax Act.
How will the new tax rate affect investors?
The new tax rate may affect investors who may sway towards the equity segment, which is relatively far more liquid and has ease of transaction.
Will this move lead to an increase in black money transactions?
According to some experts, this move may lead to an increase in black money transactions going forward.
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