Budget 2024 effects on Capital Gain of Immovable properties

Summary: The 2024 budget impacts capital gains tax for immovable properties. Under the revised provisions of Section 112 of the Income Tax Act, individuals and Hindu Undivided Families (HUFs) can now choose between two options for capital gains tax on properties purchased before July 23, 2024. For assets other than immovable property, indexation benefits are removed, and the tax rate is reduced from 20% to 12.5%. However, for immovable properties, taxpayers can either pay 20% tax with indexation benefits or 12.5% without indexation. The removal of indexation increases the tax burden in some cases, especially for assets bought long ago. For instance, Mr. Atul Shah, who purchased a residential property in 2000, would save tax by choosing the indexation option, whereas Mr. Amit Shah, who bought land in 2022, would opt for the 12.5% tax rate without indexation. This option is available only to Indian residents and not to NRIs or entities like companies and LLPs.

Tax on short-term capital gains in certain cases are provided under Section 111A of the Act. Where the total income of an assesse includes any income chargeable under the head “ Capital gains” arising from the transfer of a short term capital assets, being an equity share in a company or a unit of any equity oriented fund or a unit of a business trust and-

(a) the transection of sale of such equity shares or units is enter in to on or after 2004, and

(b) such transaction is chargeable to securities transaction tax.

Substituted for the following by the  Finance (No 2) Act 2024 , w. e. f. 23.07.2024. Prior to its substitution, the quoted words, as amended by the Finance Act, 2008 read as under:

“ the tax payable the assesse on the total income shall be the aggregate of –

 (i) the amount of income tax calculated on such short term capital gains at the rate of fifteen percent; and

 (ii) the amount of income tax payable on the balance amount of the total income as if such balance amount were total income of the assesse .”

Any transections taken place on or after the 23^rdday of July, 2024 tax legible @ 20%.

Tax on long term capital gains in certain cases are provided under Section 112A of the Act.

Where the total income includes any income chargeable under the head “Capital gains”;

The capital gains arise from the transfer of a long term capital asset being an equity share in a company or a unit of an equity oriented fund or unit of business trust, the tax payable by an assesse on the total income, shall be the aggregate of :

income tax calculated on amount such long term capital gains exceeding one lakh The twenty-five thousand rupees, after 23^rd day of July, 2024 at the rate of twelve and one half percent for any transfer.

Indexation benefit, remove from all other assets, then immovable property.  

Provided in the Finance Act(2),  benefit of Indexation for calculating Cost of Acquisition under section 48 has been removed and rate of tax on capital gain is reduced from flat rate of 20% to 12.5%. For calculation of cost of acquisition every year Cost Inflation Index was announced.

As declare in Finance Act (2), 2024, as per section 112 any assets other than immovable property rate of tax has been reduced from 20% to 12.5%, but benefit of indexation is not available, so burden of tax on assesse will increase.

Assesses have made strong representation and finance department have considered the representation and give relief to Individual and HUF assesse. Any land or building purchased by an assesse before 23^rd July, 2024 and is a resident of India have given two option. So assesse can choose whichever is beneficial to him.

Option:

(1) Rate of tax with benefit of indexation 20% or

(2) Without benefit of indexation 12.5%

Example: Mr. Atul Shah has purchased residential house before 31^st March, 2000. Fair Market Value of this house as on 1^st April, 2001 is Rs.25,00,000. Index Cost of 2024-25 is 363, accordingly Index Cost Acquisition will be Rs. 90,75,000. This house was sold at Rs.1 crore, hence capital gain will be Rs.9,25,000 and tax @ 20% will be Rs. 1,85,000

Without benefit of indexation capital gain will be 1,00,00,000- 25,00,000 = 75,00,000 tax @12.5% 9,37,500.

Out of two option Mr. Atul will choose 1^st Option and save tax.

Example-2: Mr. Amit Shah has purchased land in April, 2022 for Rs.1crore. The said land he has sold in August, 2024 for Rs.160crore.

Mr. Amit will choose option 2 and pay tax.

Please remember that the above benefit of options available to Indian Resident individual and HUF only and not to NRI, Company, Partnership Firm, LLP/ AOP, BOI.