Understanding the Impact of Budget on LTCG Tax on Immovable Property
The Union Budget has proposed a reduced LTCG tax rate of 12.5% on immovable property sales, effective 23 July 2024, while eliminating indexation benefits. Understand how this change affects your property investments.
Ltcg TaxImmovable PropertyUnion BudgetTax On PropertyReal Estate MarketReal Estate MumbaiJul 25, 2024
To comprehend the complexities of this critical budget amendment, we need to analyze the break-even points to understand the trade-off between the pre-budget indexation benefit and the new reduced LTCG rate of 12.5%. Based on this analysis, if the property's appreciation exceeds the specified break-even points for various holding periods, the post-budget provisions of taxing long-term capital gains at a reduced rate of 12.5% without indexation will be more advantageous for taxpayers.
For instance, if a property purchased for ₹1 crore in FY15 is sold for over ₹2.40 crore after 23 July 2024, the new tax regime would result in lower taxes. Conversely, if the sale price is less than ₹2.40 crore, the pre-budget tax regime would be more advantageous.
In conclusion, for the post-budget regime's reduced LTCG tax rate of 12.5% without indexation to be more advantageous, property prices must appreciate at a minimum Compound Annual Growth Rate (CAGR) of 9% to 11.2% over holding periods of 5 to 24 years. According to various research reports, the current average CAGR in India's real estate market is around 14-15%. Thus, barring exceptional cases where appreciation falls below these break-even points, the post-budget provisions are likely to be more beneficial for taxpayers.
Frequently Asked Questions
What is the proposed LTCG tax rate on immovable property sales in the Union Budget?
The proposed LTCG tax rate is 12.5%.
What is the effective date of the new LTCG tax rate?
The new LTCG tax rate is effective from 23 July 2024.
What is the break-even point analysis for the new LTCG tax rate?
The break-even point analysis is used to understand the trade-off between the pre-budget indexation benefit and the new reduced LTCG rate of 12.5%.
What is the minimum CAGR required for the post-budget regime's reduced LTCG tax rate to be more advantageous?
The minimum CAGR required is 9% to 11.2% over holding periods of 5 to 24 years.
What is the current average CAGR in India's real estate market?
The current average CAGR in India's real estate market is around 14-15%.
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