Changes in Capital gain on property rolled back in Finance Act, 2024 | Indexation available in property
Finance Bill, 2024 was announced on 23.07.2024, wherein various amendment’s were proposed. However, one important amendment which was proposed in the Finance Bill was with regard to the capital gain income.
With regard to the Capital gain income it was proposed that the tax rate for all Long term capital gain shall be 12.5% and that too without the benefit of indexation, which was a huge shock for various people especially the people who have invested the immovable property from long time as they won’t get benefit of indexation.
However, now while presenting the Finance Bill, few amendments have been proposed in the original Finance bill and one such amendment is to provide benefit of indexation to immovable property owners, wherein as per the proposed amendment the long term immovable property owner will have the option to determine tax at 20% with indexation or 12.5% without indexation and can choose for lower tax and ignore the excess tax.
This would also reduce the amount which one will have to invest in a new house property for example investment in new house under section 54 of the Income tax act wherein the amount to be invested in new house property depends on the amount of capital gain and now with indexation being allowed, this amount would be reduced.
Let’s try to understand this with an example:
Assume a property having a cost of Rs.10 lakh on 01.04.2001 and being sold in June 2024 at 3500000.
Capital gain calculation with indexation:
Indexed cost of acquisition: 3630000 (1000000*363/100)
Capital Loss: -130000
Tax on long term capital gain: 0
Capital gain calculation without indexation:
Cost of acquisition: 1000000
Capital gain: 2500000
Tax on long term capital gain: 312500.
Thus, the above example shows the benefit of indexation, although there could be different scenario where the lower tax rate could be beneficial as compared to indexation especially where the cost of asset is very low as compared to sale consideration but it would vary from case to case but in majority cases indexation is beneficial for property owners.
However, no change has been proposed in the other amendments of capital gain.
To read the amendment CLICK ME.
Guidance on above article on Income Tax by:
Naman Maloo (C.A., B.Com)
He is currently working as Partner – Direct Tax with a renowned firm in Jaipur having experience in dealing Assessments before Income Tax authority, Tax Audit, International Taxation, Tax planning for NRI, Business planning and consultation.
E-mail: naman.maloo@jainshrimal.in | LinkedIn: Naman Maloo
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