Budget 2024: Selling your house? Here's why 2001 is the critical year

A tax proposal in the budget has effectively created two classes out of those intending to sell their property.

Here’s how.

First, long term capital gains (LTCG) tax has been reduced from 20% to 12.5% for all property sales.

But, 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.

This means, from now on, for those selling properties dating before 2001, there’s a gain in the form of lower LTCG tax (there’s also a loss in the form of no indexation benefit post 2001).

And for those selling properties dating 2001 or after, benefits from the lower LTCG tax must be weighed against complete loss of indexation benefit.

Indexation for capital gains tax works this way: The indexation cut off year is 2001. Capital gains tax was imposed on the difference between the sale price and the indexed value of the property, that is the value determined by a certified valuer who looked at April 2001 property prices.

So, for an apartment purchased before 2001, property valuation as of April 2001 can still be used as the base to determine the indexed price, which will be reduced from the sale price to determine capital gains. And those gains will be taxes at a lower rate, 12.5% instead of 20%.

But for an apartment bought in, say, 2003, capital gains will be calculated on actual purchase price and sale price. There’s no indexation. But the LTCG rate is now lower.


During the post-budget press conference, finance secretary TV Somanathan claimed that 95% of the sellers will not be adversely impacted. He also said “there is either a reduction or change in the effective rate of tax on property”.

“We have a very simple regime — listed and unlisted assets are at 12.5% long-term and equities at 20%. The long term rate has been rationalised and it has not necessarily gone up”, he said.


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