Budget 2024: Will indexation benefit apply to property purchased before 2001?
This article clarifies the indexation benefit available to property purchased before 2001 from official income tax authority sources.
This article clarifies the indexation benefit available to property purchased before 2001 from official income tax authority sources.
This article is a part of our detailed article series on Union Budget 2024. Ensure you have read the other parts here:
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In a surprise move, Union Budget 2024 changed the capital gains taxation rules for real estate transactions:
The only things kept unchanged are:
Read more on the changes introduced here: Budget 2024: A Surprise in Real Estate Sales due to Indexation Benefit Removal: Is it good or bad?
This is a question that many property owners are asking. Here is the scenario.
You have a property purchased / constructed in 1990 for ₹5 lakhs. You are selling this property for ₹1 crore on or after 23rd July 2024.
What is the capital gains tax?
Thankfully, the income tax official Twitter / X handle has clarified this situation like this:
Source: https://x.com/IncomeTaxIndia/status/1816516685127725434
Therefore, the rule for calculation of capital gains is:
Old regime calculation
Cost of acquisition = minimum of (FMV of the property on 1st April 2001, Stamp Duty Value on 1st April 2001)
Here FMV is the Fair Market Value determined by a government-approved property valuation expert.
Profit as per old regime with indexation benefit = Sale price - Indexed purchase price
Here Indexed purchase price = Cost of acquisition * (CII_selling_Year / CII_Purchase_Year) where CII comes from here: How to use the Cost Inflation Index (CII): latest value and historical rates
Tax as per old regime = 20% of Profit as per old regime with indexation benefit
New regime calculation (as per Union Budget 2024 for properties sold on or after 23rd July 2024)
Profit as per new regime without indexation benefit = Sale price - Cost of acquisition
Tax as per new regime = 12.5% of Profit as per new regime without indexation benefit
Final tax payable is the minimum of these two tax values. In case of loss, there is the benefit of rolling forward the capital loss for eight subsequent years.
Note: In another surprise amendment to the Finance Bill on 6th August, 2024, the option of paying 20% tax on gains with indexation has been added to all properties acquired before Union Budget 2024 speech date of 23rd July, 2024. This means that for all such properties, including those purchased before 1st April 2001, the capital gains tax can be the lower of:
irrespective of the sale date thereby offering a grandfathering option for such properties. The exact amendment is this:
“where the income-tax computed .. exceeds the income-tax computed in accordance with the provisions of this Act, as they stood immediately before their amendment by the Finance (No. 2), Act, 2024, such excess will be ignored;”
If you read the text of the amendment carefully, then any loss cannot be offset or carried forward here since the amendment does not talk about losses. For properties acquired on or after 23rd July 2024, only the new 12.5% without indexation rule will apply.
We have covered the impact of this new change in detail here: Budget 2024 taxation rule reversal: grandfathering rule brings back indexation benefit to properties acquired before July 2024
The same post has an illustration as well using the same ₹5 lakh property purchased in 1990 and sold in 2024 on or after 23rd July 2024 for ₹1 crore like this:
Source: https://x.com/IncomeTaxIndia/status/1816516685127725434
While the Tweet does not explicitly say it, there is no mention of any change in the indexation benefit on the cost of improvement over the years on the same property which will reduce the old-regime tax value further.
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Published: 8 December 2024
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This post titled Budget 2024: Will indexation benefit apply to property purchased before 2001? first appeared on 29 Jul 2024 at https://arthgyaan.com