Budget 2024: Big tax shake-up for property sellers, buyers

NEW DELHI: The Union Budget 2024 has introduced changes to the taxation of long-term capital gains (LTCG) arising from the sale of property. The indexation benefit, which allowed property owners to adjust their purchase price for inflation, has been removed. Instead, a new LTCG tax rate of 12.5% will be applied to the capital gains on the sale of property, without considering the indexation benefit.

Here is an example from an Economic Time report. To illustrate the impact of this change, consider the following example: Mr A purchased a property for Rs 25 lakh in the financial year 2002-2003 and sells it for Rs 1 crore in the financial year 2023-2024. Under the previous rules, the purchase price of Rs 25 lakh would have been adjusted using the Cost Inflation Index (CII) numbers provided by the Income Tax Department. However, with the new rule in effect, the capital gains will be calculated by directly subtracting the purchase price from the sale price, without any inflation adjustment.


Amit Goyal, Managing Director of India Sotheby's International Realty, welcomes this change, saying, "For real estate transaction, bringing down the long-term capital gains tax from 20% to 12.5% is a welcome step, even if it comes with removal of indexation benefits. This will encourage more liquidity in property transactions. Higher uniformity in long term capital gains tax across different asset classes was a long standing ask of investors."

As per the ET report, the finance minister, in her budget speech for 2024, explained the rationale behind this change, saying, "simultaneously with rationalisation of rate to 12.5%, indexation available under second proviso to section 48 is proposed to be removed for calculation of any long-term capital gains which is presently available for property, gold and other unlisted assets. This will ease computation of capital gains for the taxpayer and the tax administration."

The Cost Inflation Index (CII) is a figure published annually by the Income Tax Department to calculate indexation benefits. It is used to determine the inflation-adjusted cost of a long-term capital asset, which is then subtracted from the sale price to arrive at the taxable capital gain. The Central Board of Direct Taxes (CBDT) has notified the CII for the financial year 2024-25 (Assessment Year 2025-26) as 363, while the CII for the previous financial year 2023-24 (Assessment Year 2024-25) was 348.

(With inputs from agencies)

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