One of Finance Minister Nirmala Sitharaman’s budget tax proposals has essentially divided property sellers into two distinct classes. Here’s the breakdown, as per a Times of India news report.
“First, long-term capital gains (LTCG) tax has been reduced from 20% to 12.5% for all property sales. Second, the benefit of indexation – adjusting the value of property to be sold to reflect current market realities – has been taken away from properties bought or inherited on or after 2001. And, third, the indexation benefit has been retained for properties bought or inherited before 2001,” stated the Times of India news report.Also read: Removal of indexation benefit: You may still owe tax even if your ‘return’ is negativeSelling properties dated before 2001 will result in lower long-term capital gains (LTCG) tax. However, there will be no indexation benefit after 2001. On the other hand, selling properties dating 2001 or after will result in lower LTCG tax, but there will be a complete loss of indexation benefit.
Capital gains tax works like this: The cutoff year for indexation is 2001. The tax is calculated on the difference between the sale price and the property’s value in April 2001, as determined by a certified valuer.
If you bought an apartment before 2001, you can still use the property valuation from April 2001 to calculate the indexed price. This indexed price will be subtracted from the sale price to find the capital gains. The tax rate on these gains will be lower at 12.5% instead of 20%.
Also read: Indexation benefit on sale of property removed; new LTCG rate of 12.5% announced for capital gains on sale of property
The capital gains for an apartment bought in 2003 will be calculated based on the actual purchase and sale prices, without considering inflation. However, the long-term capital gains tax rate is now lower. During the post-Budget press conference, the finance secretary, TV Somanathan, stated that 95% of sellers will not be negatively affected.
He said: “there is either a reduction or change in effective tax rate on property”. “We have a simple regime — listed and unlisted assets are at 12.5% long-term and equities at 20%. Long term rate has been rationalised and has not necessarily gone up.”
