Understanding the Amendment to LTCG Tax Rule for Homebuyers
The government has made significant changes to the LTCG tax rule, providing relief to homebuyers. Here's what you need to know.
Ltcg TaxHomebuyersReal EstateIndexationTax LiabilityReal Estate MumbaiAug 07, 2024
Previously, the LTCG tax was 20% earlier for the real estate sector, but with the removal of indexation benefit, it was reduced to 12.5%. However, following a strong backlash from the real estate segment, the government has now provided an option for homebuyers to choose between the two tax rates.
So, what is better for the homebuyer- LTCG with indexation or without indexation? This depends on a case-to-case basis. For instance, if someone has an ancestral property from the 1980s and plans to sell it in 2024, opting for the 20% long-term capital gains tax with indexation might be more beneficial.
On the other hand, if a property's value has significantly outpaced inflation, the 12.5% rate might be more beneficial. However, indexation could be advantageous in cases where property appreciation is closer to the inflation rate.
To evaluate which option is better, one needs to calculate the capital gains and tax liability under both scenarios. For example, if a homebuyer buys a property in Mumbai in 2005 for Rs 20 lakh and sells in 2024 for Rs 1.5 crore, the tax liability would be different under both scenarios.
Under the LTCG tax with indexation, the tax liability would be Rs 17.59 lakh, while under the LTCG tax without indexation, the tax liability would be Rs 16.25 lakh.
Similarly, if a homebuyer buys a property in Mumbai in 2005 for Rs 20 lakh and sells in 2024 for Rs 2.5 crore, the tax liability under the LTCG tax with indexation would be Rs 37.59 lakh, while under the LTCG tax without indexation, the tax liability would be Rs 28.75 lakh.
The amendment will benefit all homebuyers who have bought properties before July 23, 2024. The grandfathering provision states that properties purchased before 2001 will be valued based on indexation as of January 2001. This benefit applies to properties held from 2001 to the July 23, 2024.
However, developers who own immovable properties in companies and LLPs will not get any benefit of this amendment. Moreover, immovable property purchased after July 23, 2024 will continue to be taxed under the new law at 12.5% on LTCG without indexation benefits.
In conclusion, the amendment to the LTCG tax rule provides relief to homebuyers who purchased properties before July 23, 2024. They now have the option to choose between the two tax rates of LTCG- 20% with indexation or 12.5% without indexation.
Frequently Asked Questions
What is the LTCG tax rate for homebuyers?
The LTCG tax rate for homebuyers is 20% with indexation or 12.5% without indexation.
How do I calculate the capital gains and tax liability under both scenarios?
You can calculate the capital gains and tax liability under both scenarios by using the formula provided in the article.
Who will benefit from the amendment to the LTCG tax rule?
All homebuyers who have bought properties before July 23, 2024 will benefit from the amendment.
Will developers benefit from the amendment?
No, developers who own immovable properties in companies and LLPs will not get any benefit of this amendment.
How will the grandfathering provision affect homebuyers?
The grandfathering provision states that properties purchased before 2001 will be valued based on indexation as of January 2001. This benefit applies to properties held from 2001 to the July 23, 2024.
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