New Delhi. The central government has made a big change on long term capital gains in real estate. The government has once again given the option of indexation to property buyers/sellers.
Let us tell you that the central government had decided to remove indexation from the long term capital gains tax on real estate deals in the budget. There was a lot of opposition to this and now the government, listening to the demand of the people, has again provided the option of indexation.
However, the benefit of indexation will be available only to those property buyers who have purchased the property before 23 July 2024. Now property buyers have 2 options. First, if you want to sell the property purchased before 23 July, then pay 12.4 percent tax directly on its profit without using indexation. The second option is that you use indexation and pay 20 percent tax on the profit.
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How does indexation work?
Suppose you bought a property in 1995. Its price was Rs 50 lakh. Now you sold this property in 2015 for Rs 1.50 crore. Simply put, you made a capital gain of Rs 1 crore. Now the work of indexation here will be that the 1995 price of the property will be adjusted with inflation. In this way, on adjustment, you will see that the property purchase value will be Rs 1.20 crore. That means your capital gain is Rs 30 lakh. You will have to pay 20 percent LTCG on Rs 30 lakh. Your liability will be Rs 6 lakh.
Let us tell you that the system of indexation was still in place for properties bought before 2001 and it was abolished for properties bought after that. It is worth noting that CBDT releases the Cost Inflation Index every year so that people can easily adjust the old price of the property according to the current inflation.
