Property Tax Update: In the budget, the Long Term Capital Gain Tax (LTCG on Asset) on sale of property has been reduced by 7.5% to 12.5%, but this will not provide as much relief as was available when indexation was implemented, which the government has now removed.
Property Tax Update: An announcement has been made in Budget 2024, which will be a big blow to those selling property. A big benefit called indexation on selling property has now been removed. However, in the budget, the Long Term Capital Gain Tax (LTCG on Asset) on selling property has been reduced from 20% to 7.5% to 12.5 percent. Suppose if a property was taxed at Rs 1 lakh, then now it will be reduced to only 60 thousand. According to this, 40 percent tax has been reduced, but it will not provide as much relief as it used to. In simple words, now you will have to pay more tax (Tax on Property) on selling property than before.
Let us know in detail this announcement made in the budget in simple language that if you sell a property, how much tax will have to be paid? How much had to be paid earlier and how can you calculate the tax on the income from your property?
LTCG tax on property reduced in the budget, but…
On July 23, Finance Minister Nirmala Sitharaman made a big announcement on capital gain tax on property sale in the budget. Giving relief, the Finance Minister said that the 20 percent long term capital gain tax (LTCG) in real estate has been reduced to 12.5 percent. At first glance, it would seem that a big relief has been given by reducing the tax on selling property, but it is not so.
Actually, Finance Minister Nirmala Sitharaman has made another big change. The indexation benefit on selling property has been removed. Indexation was a tool that reduced the amount of profit that came under the purview of Long Term Capital Gain (LTCG) tax on selling property and after this LTCG tax (20%) was imposed on the remaining amount. Due to this, you had to pay less tax, but now you will have to pay more tax.
How did indexation work?
However, to understand this tax structure on property, it is very important for you to understand indexation. Indexation was the benefit that adjusted the profit made on selling property in the long term and inflation. Then tax was imposed on the property. To simplify it further, inflation was different 10 years ago, but today it is different. In such a situation, indexation adjusted the profit made on the property according to inflation and then tax (Capital Gains Tax) was imposed.
Let us know how indexation is calculated…
(Indexation = CII of the year sold/CII of the year purchased x Property purchase price)
On what amount was taxed earlier and now…?
After understanding indexation, now you can understand this tax structure on property with an example. Suppose if you bought a property in the year 2000 for Rs 20 lakh and sold it in 2009 for Rs 35 lakh, then you made a profit of Rs 15 lakh. But here you did not have to pay tax on the entire 15 lakh, the indexation benefit (Rs 29,92,288) was deducted from it. After this, LTCG tax of 20% would have to be paid on the remaining amount of Rs 5,07,712, but now you will have to pay 12.5% tax on the entire 15 lakh.
According to the first rule, using the indexation method, 20% tax would have been levied on Rs 5,07,712, i.e. Rs 1,01,542 would have to be paid as tax.
Now, under the new rule, 12.5% tax will have to be paid on a total of Rs 15 lakh without indexation. That means Rs 1,87,000 will have to be paid.
How is indexation calculated?
To calculate indexation, the Cost Inflation Index (CII) of the year the property was sold has to be divided by the Cost Inflation Index (CII) of the year the property was purchased. Whatever number comes, it has to be multiplied by the cost of acquisition i.e. the property purchase amount. Then you will get the indexation. Let us tell you that the CII of 2024-25 is 363.
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