Tax on real-estate: 12.5% w/o indexation or 20% with indexation

Remember how the tax rates on capital gains were revised in the Union Budget 2024? As a part of this, the LTCG from all types of capital assets were made taxable at flat 12.5% without any indexation benefit. Here’s a thread if you wanna know what exactly is indexation benefit.

Coming back, this amendment faced a lot of backlash from people owning real-estate. Earlier, LTCG from properties was taxed at 20% along with the indexation benefit. So, many people who had held on to their properties since a long time would now have to pay more taxes despite the tax rate being slashed to 12.5%. But how?

Let’s take an example.

You purchased a property in 2004 for ₹1 crore and sold it in FY 2024-25 for ₹4 crore.

Tax calculation on LTCG from property: New vs old capital gain tax rates

So, if someone had to pay taxes as per the new rates, they’d have to pay 37.5 lakh in taxes, which is more than 2 times of the tax liability as per the older rates.

However, this would not be the case every time. Indexation only becomes beneficial in cases where the property is held for a very long time (20 years in the above example). If the same property was held for say 5 years (purchased in 2019), the calculation would become as follows.

Tax calculation on LTCG from property: New vs old capital gain tax rates

As you can see, in this case, the newer rates become beneficial where you’d have to pay 17.3 lakhs lesser.

So, to help taxpayers out, the CBDT yesterday announced an amendment. Following this, you can now choose either of the above tax rates, i.e. 20% with indexation or 12.5% without indexation, to pay taxes on your LTCG from real estate. This will be applicable only for residents and HUFs and for properties purchased before 23rd July 2024.

Here’s a calculator we made to help you calculate the tax liability as per both the rates.

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