The recent Budget 2024 announcement has brought about significant changes for those looking to sell their properties or shares in the market. While there was a reduction in taxes in the budget, the rules have now been altered. If you have invested in property or shares and are planning to sell them or are considering where to invest, it is crucial to understand the important changes in this budget.
The government has announced changes in the capital gain tax in this budget. Capital gain tax refers to the tax levied on your profits. Finance Minister Nirmala Sitharaman has announced significant changes in the capital gain tax in this budget, along with the removal of indexation benefits, which can impact real estate transactions significantly.
So, what are the changes that have been made? Long-term capital gain tax (LTCG) on property sales has been reduced from 20% to 12.5%. The Finance Minister has also clarified that listed financial assets will be considered for long-term holding if held for one year or more. This will also include shares and mutual funds. Unlisted financial or non-financial assets will be considered for long-term holding if held for two years or more.
For property sellers, there may be some shocks in store due to these government decisions. The reduction in long-term capital gain tax by the government may result in additional taxes for property sellers. In fact, the indexation benefit that was available until now for property sellers has been removed in this budget.
Now, let’s understand what indexation benefit is. In indexation benefit, the remaining amount after calculating the new value of your property as per the inflation index rate was taxed at 20%. However, this has now been changed. For example, if you bought a property for Rs. 50 lakhs ten years ago and its value has now increased to Rs. 2 crores, you would have been eligible for indexation benefit on the remaining amount. This means that, keeping inflation in mind, the new value of your Rs. 50 lakh property will be calculated.
Now, assume that the inflation index indicates that the value of your Rs. 50 lakh property is now Rs. 1.25 crores. If you sell your property at this value, you will be liable to pay long-term gain tax as per the rules on your Rs. 75,000 at a rate of 20%. However, this rule has now been removed.
In conclusion, the recent budget announcement has brought about significant changes in the capital gain tax and indexation benefits for property sellers. It is essential for property sellers to understand these changes and plan their transactions accordingly to avoid any surprises.