I sold my house in April 2024. Will I follow the new capital gains tax rules introduced in Budget 2024?

I am 45 and I have sold my house in Delhi in April 2024. How will my capital gains tax be calculated after the recent tweaks in the Union Budget 2024?

Name withheld on request

Reply by CA (Dr.) Suresh Surana

As a 45-year-old citizen, who has sold a house in Delhi for Rs 90 lakh in April 2024, you may be liable for capital gains tax depending on various factors. If a taxpayer sells a house, they are liable to pay capital gains tax on the sale. The capital gain tax imposed on property pertains to the financial gain acquired from the sale or transfer of residential properties or land by an individual. The tax treatment depends on whether the gains are classified as short-term or long-term.

> Short-Term Capital Gains (STCG): If the house property was held for up to 24 months before selling, any gains are considered short-term. STCG would be taxed in accordance with the slab rates applicable to the taxpayer plus applicable surcharge and cess.

> Long-Term Capital Gains (LTCG): If the property was held for more than 24 months before selling, any gains are considered long-term. LTCG is taxed at 20% after availing the indexation benefits. It is pertinent to note that the option of availing the 12.5% (without indexation) since the sale/ transfer has taken place before July 23, 2024.

New amendments in Budget 2024

The Budget 2024, presented by Union Finance Minister Nirmala Sitharaman in July, proposed the following amendments effective from FY 2024-25: 

Assets are classified into long-term and short-term categories based on holding periods of 12 months and 24 months. The 36-month holding period has been eliminated.

For listed securities, the holding period is set at 12 months. Any listed securities held for more than 12 months are categorized as Long-Term. For all other assets, the holding period is 24 months.

The taxation on Short-Term Capital Gain for listed equity shares, units of equity-oriented funds, and units of business trusts has been raised from 15% to 20%. Other financial and non-financial assets held for the short term will continue to be taxed at slab rates. Other financial and non-financial assets which are held for short term shall continue to attract the tax at slab rates.

The recent tax amendments have brought changes in the exemption and taxation of long-term capital gains on various assets. The exemption limit for long-term capital gains on the transfer of equity shares, equity-oriented units, or units of Business Trust has increased from Rs. 1 lakh to Rs. 1.25 lakh per year. This new limit applies for the entire year. However, the tax rate on these gains has been raised from 10% to 12.5%, effective from July 23, 2024.

Furthermore, the tax rate on other assets has been reduced from 20% to 12.5% as of July 23, 2024. It's important to note that the indexation benefit previously available on the sale of long-term assets has been eliminated.

In the case of real estate transactions purchased before July 23, 2024, taxpayers now have the option to compute taxes at 12.5% without indexation or at 20% with indexation. These changes aim to streamline the tax structure and provide taxpayers with more clarity and options in their financial planning.

The Budget 2024 proposed the sale of land and building made from 23rd July 2024 will attract a tax rate of 12.5% without indexation benefit or a 20% tax rate with the indexation benefit at the option of taxpayer, if such property has been acquired before 23rd July, 2024.

The Finance Minister introduced a significant amendment in the Finance (No.2) Bill, 2024 during the Lok Sabha session. This amendment includes a provision for grandfathering protection concerning Long-Term Capital Gains (LTCG) on the sale of immovable property acquired prior to July 23, 2024, and transferred on or after July 23, 2024, by resident individuals and Hindu Undivided Families (HUFs). This safeguard restricts their LTCG tax liability to the lower of two options: either 20% with indexation or 12.5% without indexation.

Points to note

Taxpayers are not given the option to select between the old and new tax regimes; instead, the government will ascertain the appropriate tax to be imposed after conducting the necessary calculations.

In instances where the old regime leads to a financial loss, taxpayers will not be permitted to offset this loss under the new regime.

The primary objective of the government's decision is to strike a balance between meeting the tax revenue requirements and addressing taxpayers' apprehensions concerning the elimination of the indexation benefit.