What is Capital Gains Tax? Understanding the Changes in Union Budget 2024.

Capital Gains Tax:

Capital gains tax in India is the tax charge on profits from selling capital assets like stocks, Real estate or gold. It’s divided into two categories one is Short-Term Capital Gains (STCG) and second one is Long-Term Capital Gains (LTCG) with different tax rates based on holding period.

The Union Budget 2024 has brought significant changes to India’s capital gain tax landscape, affecting investors across various asset classes, including real estate. If you own property or investments, it’s crucial to understand these new rules to make informed financial decisions. Let’s break it down.

India’s Union Budget 2024 introduced significant changes:

• Flat LTCG Rate: A uniform long-term capital gains (LTCG) tax rate of 12.5% applies across all asset classes (equity, debt, gold, Real estate property). Previously, rates varied based on asset type.
• Elimination of Indexation: The benefit of indexation, which adjusted purchase price for inflation and potentially lowered taxable gains, is removed.
• STCG Rate Hike: The short-term capital gains (STCG) tax rate for equity shares and equity mutual funds increased to 20% (from 15%). STCG on other assets remains taxed at your income tax slab rate.
• Increased Exemption Limit: The exemption limit for LTCG on equity sales rose to ₹1.25 lakh (from ₹1 lakh).

How Does This Impact Real Estate Investors?

The Union Budget 2024 introduced mixed effects for real estate in India:

Potential Benefits:

• Lower LTCG Tax in Some Cases: The flat 12.5% LTCG tax for long-term holdings (over 24 months) could benefit investors who’ve held properties in high-inflation periods, reducing their tax outgo compared to the previous system with indexation.

Potential Drawbacks:

• Higher Tax for Short-Term Sales: The elimination of indexation and a 20% STCG tax rate for properties held under 24 months might increase the tax burden for short-term investors or those with minimal inflation-adjusted gains.

Overall Impact:

• The effect depends on individual factors like investment horizon and property value growth. Consulting a tax advisor for your specific situation is advisable.

Additional Budget Measures:

• Increased allocation for urban housing initiatives may boost demand for residential properties.
• Focus on infrastructure development could improve connectivity to some areas, impacting property values there.

Calculating LTCG & STCG:

LTCG (Held for over 24 months):

• LTCG = Sale Price – Purchase Price – Exemption Limit (₹1.25 lakh)

STCG (Held for 24 months or less):

• STCG = Sale Price – Purchase Price

Key points to note:

• Indexation benefit to adjust purchase price for inflation is no longer available.
• LTCG tax rate is flat at 12.5%.
• STCG tax rate for real estate is 20%.

For Understanding:

Here’s an example to illustrate LTCG and STCG calculation after Budget 2024 for real estate:

Scenario: You bought a plot of land in 2020 for ₹50 lakh and sold it in July 2024 for ₹80 lakh.

LTCG Calculation (assuming held for over 24 months):

• LTCG = ₹80 lakh (Sale Price) – ₹50 lakh (Purchase Price) – ₹1.25 lakh (Exemption Limit)
• LTCG = ₹28.75 lakh

Tax on LTCG:

• LTCG tax rate = 12.5%
• Tax amount = ₹28.75 lakh * 12.5% = ₹3.59 lakh

STCG Calculation (assuming held for less than 24 months):

• STCG = ₹80 lakh (Sale Price) – ₹50 lakh (Purchase Price)
• STCG = ₹30 lakh

Tax on STCG:

• STCG tax rate = 20%
• Tax amount = ₹30 lakh * 20% = ₹6 lakh

In this example:

• For a long-term holding (over 24 months), the LTCG tax liability is ₹3.59 lakh.
• For a short-term holding (less than 24 months), the STCG tax liability is ₹6 lakh.

Remember: This is a simplified example. This blog post is for informational purposes only and should not be considered tax or financial advice. Always consult with a qualified professional for personalized guidance.