The long-term capital gains tax (LTCG) rate in the real estate industry is likely to decrease, which would result in “substantial tax savings” for the great majority of taxpayers.Tax rates on capital gains on the sale of long-term held real estate have been lowered by the budget, although taxpayers will no longer receive the indexation benefit.
Indexation benefit on sale of property removed; new LTCG rate of 12.5% announced for capital gains on sale of property
Note that these proposed changes have come immediately from July 23, 2024. .
LTCG benefit
For the real estate industry, the LTCG has been lowered from 20 percent with indexation benefit to 12.5% without indexation.
Taxpayers were able to calculate gains from the sale of capital assets after accounting for inflation thanks to the indexation advantage
In a social media post on X, the income tax department said the nominal real estate returns are generally in the region of 12-16 per cent per annum, much higher than inflation.
“The indexation for inflation is in the region of 4-5 per cent, depending on the period of holding. Therefore, substantial tax savings are expected to a vast majority of such taxpayers,” it said.
— IncomeTaxIndia (@IncomeTaxIndia)
According to the I-T department, the new tax rate without indexation is generally advantageous, citing a comparison of benefits based on the holding duration of the real estate property.
The new regime benefits properties held for five years if their value has improved by 1.7 times or more, and properties held for ten years if their value has climbed by 2.4 times or more.
It is advantageous for a property bought between 2009 and 2010 if its value has increased by at least 4.9 times.
“From the above examples, it is clear that only where returns are low (less than about 9-11 per cent per annum) that the earlier tax rate is beneficial, but such low returns in real estate are unrealistic and rare,” said the department of information technology.
The government has kept the indexation benefit for taxpayers on properties purchased or inherited prior to 2001, as per the adjustments made in the 2024–25 Budget. The tax rate adjustments are going to take effect on July 23, 2024.
