If you have invested in property or the stock market, or are planning to, you need to know the essential changes made in this budget. The government has announced modifications in the capital gain tax. Simply put, capital gain tax is the tax levied on your profits. Finance Minister Nirmala Sitharaman has announced significant changes in the capital gain tax in this budget, including the removal of the indexation benefit rule, which can primarily affect real estate transactions.
Understand the Changes
The long-term capital gains tax (LTCG) on the sale of assets has been reduced from 20% to 12.5%. The Finance Minister also clarified the definition of long-term. She stated that financial assets listed must be held for a year or more to be considered long-term investments, including shares and mutual funds. Unlisted financial or non-financial assets must be held for 2 years or more to qualify as long-term investments.
Potential Impact on Property Sellers
This decision may adversely affect property sellers. At first glance, it may seem that the government has reduced the long-term capital gain tax. However, the catch is that the indexation benefit previously available on property sales has been removed in this budget.
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Understanding Indexation Benefit
Previously, the indexation benefit recalculated the price of your property based on inflation rates, and you were taxed 20% on the remaining amount. This has now changed. For example, if you bought a property for 50 lakh rupees ten years ago, its value might be 2 crore rupees today. Earlier, the indexation benefit rules would apply, recalculating your 50 lakh rupees considering inflation. If the inflation index suggests the land value is now 1.25 crore rupees, then the land would be considered worth 1.25 crore rupees. Then, you would be taxed 20% on the remaining 75 lakh rupees under the long-term gain tax rule. Now, this rule has been removed.
