When Finance Minister Nirmala Sitharaman presented the full budget for the financial year 2024-25, the biggest change was seen in the form of many changes in the Long Term Capital Gain Tax (LTCG Tax). On the one hand, the government increased its rate from 10 percent to 12.5 percent. On the other hand, by eliminating the benefit of indexation on assets like property and gold, their tax rate was reduced from 20 percent to 12.5 percent. This entire change has troubled the investors dealing in property the most. Therefore, now the Income Tax Department has clarified how LTCG tax will be calculated on property sale?
The Income Tax Department says that while calculating LTCG tax, the purchase cost of immovable assets or property purchased before 2001 will now be considered as the original cost. The fair market value (not more than the stamp duty value) as on April 1, 2001 will be the actual cost of any land or building. The cost after this will be considered as capital gain.
The benefit of indexation that the government has removed in the calculation of LTCG tax works to eliminate the effect of inflation at the time of sale of a property or gold. In this way, 20 percent LTCG tax is levied on the capital gain after removing the effect of inflation. To make it simple, the government has removed indexation, while the rate of LTCG tax has been made flat at 12.5 percent.
The Income Tax Department has said that the benefit of indexation will not be available on properties purchased after April 2001. Whereas in the case of properties purchased before the year 2001, the fair price value (not more than the stamp duty value) can be made the base for adjusting inflation. In the sale of property before 2001, indexation will be calculated and deducted from the sale value and after that 20 percent LTCG tax will be levied.
The Income Tax Department has tried to explain this with an example. According to this, suppose a person bought a property in 1990 for Rs 5 lakh. On April 1, 2001, the price of this property according to stamp duty became Rs 10 lakh and the fair market value became Rs 12 lakh. Now if it is sold for Rs 1 crore after July 23, 2024, then its cost will be its stamp duty price or fair market value as on April 1, 2001, whichever is less.
Now when the tax will be calculated on this in the financial year 2024-25, the cost of indexation will be Rs 36.3 lakh (Rs 10 lakh X 363/100). Here 363 is the cost inflation index for the financial year 2024-25. This index is notified by the Income Tax Department. In this way, the property sale price of a person will be Rs 63.7 lakh (after deducting Rs 36.3 lakh from Rs 1 crore) in case of LTCG tax. If tax was paid on this at the rate of 20 percent, then the LTCG tax would have been Rs 12.74 lakh.
Now in the new system, indexation has been removed. The LTCG taxable price will be estimated at Rs 90 lakh (cost of Rs 10 lakh less Rs 1 crore) and the LTCG tax on this will be Rs 11.25 lakh crore at the rate of 12.5 percent.
