Indexation benefit axed: How Budget 2024 jolts the property market
In a significant development, Finance Minister Nirmala Sitharaman announced during the 2024 Union Budget that the indexation benefit for property sales will be eliminated. This means individuals selling their properties can no longer adjust their purchase price with inflation, potentially increasing their capital gains tax liability. The move will significantly reduce gains from selling older properties. However, on the positive side, the long-term capital gains (LTCG) tax rate on property sales has been reduced from 20% to 12.5%.
Impact of tax changes on real estate investors
The removal of the indexation benefit has been met with disappointment. "This is indeed not good news for those looking to profit from their real estate investments," said CA Hiren Thakkar of Hiren S Thakkar & Associates. Until now, taxpayers could adjust the purchase price using the Cost Inflation Index numbers specified by the Income Tax Department. With no indexation benefit available anymore, taxpayers will now calculate capital gains by deducting the actual purchase price from the sale price directly.
Tax liability comparison: Old vs new rules
Let's say you purchased a property in 2010 for ₹1 crore. If you sold it in 2024 for ₹2 crore, your capital gain would come to ₹1 crore (₹2 crore - ₹1 crore), as per the new rules. With indexation, the cost price would be adjusted for inflation, reducing the taxable capital gain. However, with indexation now removed, the entire ₹1 crore difference will be considered as capital gain, leading to a higher tax burden and thus, a reduced profit.
