How To Calculate Long Term Capital Gain on Property (w.e.f 23.07.2024)
Calculate Long Term Capital Gain on Property: Long Term capital gain on Property (LTCG) arises when you sell a property. This happens if the property was held for more than 24 months.
Long Term Capital gain Tax on Property refers to the profit derived from the sale of a capital asset. Depending on the holding period, these gains are categorised into:
- Short-Term Capital Gains (STCG): Gains from property held for 24 months or less.
- Long-Term Capital Gains (LTCG): Gains from property held for more than 24 months.
Here’s a summary of the information:
| Type of Capital Gain | Holding Period | Key Features |
|---|---|---|
| Short-Term Capital Gains | 24 months or less | Higher tax rates, No indexation benefits |
| Long-Term Capital Gains | More than 24 months | Lower tax rates, Indexation benefits available up to 23.07.2024 |
The tax implications of these gains have undergone significant changes with the Finance (No. 2) Act, 2024, effective from July 23, 2024. This post aims to comprehensively overview the latest rules and how they impact your tax liability.
Long Term Capital Gain Tax on Property -Key Changes Introduced w.e.f 23.07.2024
- Removal of Indexation Benefits: For properties acquired on or after July 23, 2024, the indexation benefit has been removed. This means you cannot adjust the cost of acquisition of the property for inflation. This will lead to a higher taxable gains.
- Uniform Tax Rate: A uniform tax rate of 12.5% applies to LTCG on property sales made on or after July 23, 2024, regardless of the acquisition date.
- Grandfathering Provision: For properties acquired before July 23, 2024, taxpayers can choose between:
- Old regime: 20% tax rate with indexation, or
- New regime: 12.5% tax rate without indexation.
- Lower Tax Liability: You choose the regime where your tax liability is lesser.
Key Changes on Long Term Capital Gain on Property (Effective July 23, 2024)
- Old Regime: LTCG was taxed at 20%, with indexation benefits to adjust for inflation, reducing taxable gains.
- New Regime Highlights:
- Flat Tax Rate: The LTCG tax rate has been reduced to 12.5%.
- No Indexation Benefits: For properties acquired on or after July 23, 2024, indexation benefits are no longer available. The entire capital gain is taxed at 12.5%.
- Grandfathering Provision: Properties purchased before July 23, 2024, allow taxpayers to choose between the older regime (20% tax with indexation) or the newer regime (12.5% tax without indexation).
| Particulars | Old Regime | New Regime (Effective from July 23, 2024) |
|---|---|---|
| Tax Rate | 20% | 12.5% |
| Indexation Benefits | Available to adjust for inflation, reducing taxable gains. | Not available for properties acquired on or after July 23, 2024. |
| Grandfathering Provision | Not applicable | Applies to properties purchased before July 23, 2024, allowing a choice between old and new regimes. |
This change significantly impacts how property gains are calculated and taxed. It offers a lower rate but removes inflation adjustments for new acquisitions.
Long Term Capital Gain on Sale of Property
The sale of property can lead to significant capital gains. Understanding Long-Term Capital Gains Tax (LTCG) on property is essential for knowing your tax obligations. This guide explains the latest tax regulations, effective from July 23, 2024.
What is Long Term Capital Gain Tax on Property?
Long Term Capital Gain Tax on Property (LTCG Tax) is a tax on profits earned. It applies to profits from the sale of assets held for a specific period. In the context of property, it applies to gains from selling a property. The property must have been owned for more than 24 months.
How To Calculate Long Term Capital Gain on Property?
Before July 23, 2024:
- Step 1: Determine the indexed cost of acquisition.
- Step 2: Calculate the capital gains by subtracting the indexed cost of acquisition from the sale proceeds.
- Step 3: Apply the 20% tax rate on the calculated capital gains.
On or After July 23, 2024:
- Step 1: Find out the cost of acquisition i.e. the price you paid for the property.
- Step 2: Determine the sale proceeds i.e. the price at which you agreed to sale the property.
- Step 3: LTCG: Sale Proceeds subtracted by the Cost of Acquisition( No indexation is permitted)
- Step 4: Apply tax @12.5% on the calculated capital gains.
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Example of Long Term Capital Gain on Sale of Property on or after 23.07.2024
- Scenario: You purchased a property on January 1, 2020, for Rs. 50 Lakh. You sold it on January 1, 2025, for Rs. 1 crore.
Calculation of Long Term Capital Gain Tax on Property :
- Long Term Capital Gain on Sale of Property = Sale Proceeds – Cost of Acquisition = Rs. 1 crore – Rs. 50 lakh = Rs. 50 lakh
- LTCG Tax = Capital Gains * Tax Rate = Rs. 50 lakh * 12.5% = Rs. 6.25 lakh
Long Term Capital Gain on Property sold on or after 23.07.2024–Key Highlights:
- Holding Period: The holding period for long-term capital gains on property is more than 24 months.
- No Indexation Benefits: No indexation benefits are allowed for properties sold on or after 23rd July 2024 i.e. after the grand-fathered date.
- LTCG Tax Rate: LTCG Tax rate has been reduced to 12.5% from earlier 20% at the cost of removing indexation benefits on the cost of acquisition.
- Exemptions and Deductions U/S 54: Certain exemptions and deductions are available under specific circumstances. It’s advisable to consult with a tax professional to calculate your eligibility.
Calculate Long Term Capital Gain on Property sold before 23.07.2024
Calculation of Long Term Capital Gain on Property:
Determine the Cost of Acquisition: This is the original price you paid for the property. It includes any expenses incurred during the purchase. These expenses are stamp duty, registration fees, and brokerage charges.
- Calculate the Indexed Cost of Acquisition (for properties acquired before 23.07.2024):
- Obtain the Cost Inflation Index (CII) values: The CII is published annually by the Income Tax Department. You’ll need the CII for the year of acquisition and the year of sale.
- Apply the formula: Indexed Cost of Acquisition =
(Cost of Acquisition * CII of the year of sale) / CII of the year of acquisition
- Determine the Sale Consideration: This is the amount you received from selling the property.
- Calculate the Long-Term Capital Gain:
- For properties acquired before 23.07.2024 (under the old regime):
LTCG = Sale Consideration - Indexed Cost of Acquisition
- For properties acquired before 23.07.2024 (under the old regime):
Calculation of Tax Liability
- For properties acquired before 23.07.2024:
- Taxpayers has the option to choose between:
- Old Regime: LTCG is taxed at 20% after indexation.
- New Regime: LTCG is taxed at 12.5% without indexation.
- Taxpayers has the option to choose between:
Example of Long Term Capital Gain on Sale of Property on or after 23.07.2024
Scenario: Let’s assume you purchased a property on January 1, 2020, for Rs. 50,00,000. The CII for 2020 is 301, and the CII for 2024 is 334. You sold the property on January 1, 2025, for Rs. 1,00,00,000.
- Indexed Cost of Acquisition:
Indexed Cost of Acquisition = (50,00,000 * 334) / 301 = Rs.55,48,173 - LTCG (under the old regime):
LTCG = 1,00,00,000 - 55,48,173 = Rs.44,51,827 - Tax Liability (under the old regime):
Tax = 44,51,827 * 20% = ₹8,90,365
Exemptions and Deductions U/S 54:
Investment in Capital Gains Bonds: You can invest the LTCG in specified capital gains bonds and claim exemption from tax.
Exemption Limit: LTCG up to ₹1,25,000 in a financial year is exempt from tax.
Investment in Residential Property: You can invest the LTCG in a new residential property. Do this within two years from the date of sale. This allows you to claim exemption from tax on the reinvested amount.
Impact of Changes on Long Term Capital Gain on Sale of Property
The removal of indexation benefits is likely to have a significant impact on taxpayers. It will increase the tax burden for those who acquire property on or after July 23, 2024. But, the reduced tax rate of 12.5% provide some relief.
Long Term Capital Gain on Sale of Property: Conclusions
Understanding the complexities of Long Term Capital Gain on Property is crucial for taxpayers. The recent changes in tax regulations in July 2024 have introduced new LTCG calculations for property transactions. By staying informed and seeking professional advice, you can ensure compliance with tax laws and minimize your tax liabilities.
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