Budget 2024 removed Indexation Benefit on Property Sale; New LTCG Rate Announced

In the Budget 2024, the Government removed the indexation benefit for property sales. This means people can no longer increase property purchase prices to reduce capital gains. Before this change, long-term capital gains from selling property were taxed at 20% with indexation. Now new tax rate is 12.5%, but without indexation benefit.

The Finance Minister clarified that properties bought before April 1, 2001, can use the higher actual purchase price or the fair market value as of April 1, 2001, to calculate gains. For properties bought after April 1, 2001, the actual purchase price will be used.

Gold Investments and LTCG Tax

Gold investments will also have a long-term capital gains tax of 12.5% instead of 20% with indexation. The holding period for gold is now 24 months.

Changes to the Old Income Tax Regime

According to the Finance Minister’s 2024 budget speech, indexation benefits under section 48 will be removed for calculating long-term capital gains on property, gold and other unlisted assets. This change aims to simplify tax calculations for both taxpayers and the tax administration.

What is the Cost Inflation Index (CII)?

Every financial year, the Income Tax Department publishes the Cost Inflation Index (CII) to calculate indexation benefits. This index helps adjust the purchase price of long-term capital assets for inflation. To find taxable capital gain, you subtract the inflation-adjusted purchase price from the sale price. However, indexation benefits are only available for specific assets.

The indexation benefit and the new LTCG tax rate of 12.5% aim to simplify the calculation of capital gains for both taxpayers and tax administration. However, it means sellers will have to pay more tax on their gains. Since they can’t adjust their purchase price for inflation.