This article helps you calculate the minimum price above which you must sell your property to pay lower taxes under the taxation rule change as per Budget 2024.

This article is a part of our detailed article series on Union Budget 2024. Ensure you have read the other parts here: Show/Hide

📚 Table of Contents

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• What did Union Budget 2024 change about capital gains tax on real estate?
• How to calculate the minimum profit to pay lower capital gains taxes under the new rules as per Union Budget 2024?
• What is the minimum selling price for a ₹10 lakh property to pay lower tax in the new regime?
• How does profit CAGR differ from inflation implied by the CII?

What did Union Budget 2024 change about capital gains tax on real estate?

In a surprise move, Union Budget 2024 changed the capital gains taxation rules for real estate transactions:

• Removed indexation in the name of “simplification” of capital gains tax calculation
• Reduced the tax rate from 20% with indexation to 12.5% without indexation

The only things kept unchanged are:

• Definition of long-term (i.e. eligibility for long-term capital gains or LTCG) holdings kept intact at two years and above
• Any real estate gains due to selling before two years (i.e. short-term capital gains or STCG) will be taxed at the slab rate of the seller

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?

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:

• 20% with indexation (the previous rule)
• 12.5% without indexation (the new rule)

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

How to calculate the minimum profit to pay lower capital gains taxes under the new rules as per Union Budget 2024?

Let us declare:

SP = Selling Price of the property

CP = Cost or construction price of the property

Profit_PCT (profit percentage) = SP/CP - 1

Indexation_PCT = CII_sell / CII_buy - 1 where CII comes from here: How to use the Cost Inflation Index (CII): latest value and historical rates

New tax regime as per Budget 2024

Tax = n * (SP - CP) where n = 12.5% or 1/8

or, Tax = n * (SP/CP - 1) * CP

or, Tax = n * Profit_PCT * CP

Old tax regime

Tax = 20% of (SP - I * CP) where I = CII_sell / CII_buy

or, Tax = 20% of (SP/CP - I) * CP

or, Tax = 20% of (Profit_PCT + 1 - I) * CP

or, Tax = 20% of (Profit_PCT + 1 - (Indexation_PCT+1)) * CP, since Indexation_PCT = I - 1

or, Tax = 20% of (Profit_PCT - Indexation_PCT) * CP

So if

Tax_new ≤ Tax_old_with_indexation then

n * Profit_PCT * CP ≤ 20% of (Profit_PCT - Indexation_PCT) * CP

or, n * Profit_PCT ≤ (Profit_PCT - Indexation_PCT) / 5 since 20% = 1/5

or, Profit_PCT * (n-1/5) ≤ - Indexation_PCT / 5

or, Profit_PCT ≥ Indexation_PCT / 5 * (1/5-n) [note the sign flip]

or, Profit_PCT ≥ Indexation_PCT / (1-5n)

With n = 12.5% = 1/8,

Profit_PCT ≥ Indexation_PCT / (1-5/8) or Profit_PCT ≥ 8/3 * Indexation_PCT

or, Profit_PCT ≥ 2.6667 * Indexation_PCT

We can now calculate the factors applicable for different tax rates from 10% to 15% for potential new values of the tax rate that replaces indexation.

What is the minimum selling price for a ₹10 lakh property to pay lower tax in the new regime?

For property sold in FY2024-25 after 23rd July 2024, this table gives the minimum selling price for ₹10 lakh purchased in the year as per this table.

For a ₹10 lakhs property purchased in FY2006-07, the minimum selling price must be ₹62.68 lakhs or higher to pay the same or lower tax than the old 20%-with-indexation rule.

We will show the tax calculation in the table below. We have rounded up the selling prices to the next lakh to make the calculation clearer.

Of course, you can save as part of this tax by investing up to ₹50 lakhs in Section 54EC capital gains bonds: How Section 54EC helps you save tax when you sell property.

How does profit CAGR differ from inflation implied by the CII?

The Cost Inflation Index (CII), given what the values are, is only used as an inflation proxy in capital gains calculation (table below). It is not to be used for actual inflation values.

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We can now calculate the actual minimum profit percentage for selling the property based on the inflation values, implied from CII, and create the table below:

The chart below shows the split of inflation change and profit percentage. It calculates the excess returns over inflation like this:

To understand whether it is the right price to sell your property:

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Whether the investor will get this minimum return when selling the property will be another consideration. If the property price is not appreciating enough then there might be a case of exiting that unit and reinvesting in a better-performing unit.