The taxation on real estate now has two options. You either pay 20% long term capital tax indexation or 12.5% without taxation. The choice is all yours now!
Taxation on Real Estate: Union Budget, 2024
Through the Union Budget, 2024 the Hon’ble Finance Minister Smt Nirmala Sitharaman had proposed that the real estate properties will now attract long term capital gains at a flat rate of 12.5%. This tax rate is however, without the indexation. This is to say that with the reduction in capital gains tax rate, the seller will not be able to claim the indexation benefits.
Simply put, there will be two options for property owners now while selling their properties and they can go for the one where they have lower tax liability:
1) Compute the tax on long-term capital gains on the sale of immovable property at 20% with indexation benefit.
2) Compute the tax on long-term capital gains on the sale of immovable property at 12.5% without indexation benefit.
New Announcement: Big Relief to Real Estate
On 7th August 2024, the government has made an announcement that the taxpayers can now choose between a lower tax rate of 12.5% without indexation or a higher rate of 20% with indexation. Accordingly, the taxpayer can pay the tax amount whichever is lower of the two.
What all properties can choose between the two tax rates?
The option to choose between the two tax rates is available to all the properties purchased before 23 July, 2024. Therefore, the properties bought and sold after 23rd July, 2024 have to pay tax @12.5% without any indexation.
Who is eligible to choose between the two tax rates?
Firsly, only individuals and HUFs can choose between the two tax rates. Further, this option is available only if the selling of the property is before 23rd July, 2024.
And, secondly, the options of the tax rates with or without indexation is available on commercial as well as non-commercial properties.
Further, there cannot be claiming of indexation on losses. Therefore, the owners cannot carry forward or offset their losses.
What factors should you consider to choose between the two tax rates?
The following factors must be kept in mind to choose between the two tax rates:
– Purchase price of the property
– Age of the property
– Price growth of the property
– Duration of holding the property, etc
Cost Inflation Index Table from FY 2001-02 to FY 2024-25
| Financial Year | Cost Inflation Index (CII) |
| 2001-02 (Base year) | 100 |
| 2002-03 | 105 |
| 2003-04 | 109 |
| 2004-05 | 113 |
| 2005-06 | 117 |
| 2006-07 | 122 |
| 2007-08 | 129 |
| 2008-09 | 137 |
| 2009-10 | 148 |
| 2010-11 | 167 |
| 2011-12 | 184 |
| 2012-13 | 200 |
| 2013-14 | 220 |
| 2014-15 | 240 |
| 2015-16 | 254 |
| 2016-17 | 264 |
| 2017-18 | 272 |
| 2018-19 | 280 |
| 2019-20 | 289 |
| 2020-21 | 301 |
| 2021-22 | 317 |
| 2022-23 | 331 |
| 2023-24 | 348 |
| 2024-25 | 363 |
What is the formula for calculating Cost Inflation Index?
The formula to calculate the cost inflation index is as follows:
Cost Inflation Index (CII) = CII for the year the asset was transferred or sold / CII for the year the asset was acquired or bought
Illustration (on the basis of value growth)
| Purchase Price (2001) | Rs. 10 Lacs | Rs. 10 Lacs | Rs. 10 Lacs | Rs. 10 Lacs | Rs. 10 Lacs |
| Property Growth Rate (Yearly) | 4% | 6% | 8% | 10% | 12% |
| Sale Price (2024) | Rs. 2,46,47,155 | Rs. 3,81,97,497 | Rs. 5,87,14,636 | Rs. 8,95,43,024 | Rs. 13,55,23,473 |
| With Indexation | Rs. 3,63,00,000 | Rs. 3,63,00,000 | Rs. 3,63,00,000 | Rs. 3,63,00,000 | Rs. 3,63,00,000 |
| Capital Gains (Old Tax Rule) | Rs. 1,16,52,845 | Rs. 1,18,97,497 | Rs. 2,24,14,636 | Rs. 5,32,43,024 | Rs. 9,92,23,473 |
| Old Tax Rate @20% | 0% | Rs, 3,79,499 | Rs. 44,82,927 | Rs. 1,06,48,605 | Rs. 1,98,44,695 |
| Capital Gains (without indexation) | Rs. 1,46,47,155 | Rs. 2,81,97,497 | Rs. 4,87,14,636 | Rs. 7,95,43,024 | Rs. 12,55,23,473 |
| New Tax Rate @12.5% | Rs. 18,30,894 | Rs. 35,24,687 | Rs. 60,89,330 | Rs. 99,42,878 | Rs. 1,56,90,434 |
| Benefit under New Tax Rate | Rs. 18,30,894 | Rs. 31,45,188 | Rs. 16,06,402 | Rs. 7,05,727 | Rs. 41,54,260 |
| Beneficial LTCG Rule | Old | Old | Old | New | New |
Purchase year: 2001, sale year: 2024, number of years: 23, purchase price: Rs 10,000,000, CII in purchase year 100, CII in sale year: 363
Illustration (on the basis of year of purchase)
| Property Transfer Scenarios | Property I | Property II | Property III | Property IV |
| Date of acquisition | 01/01/2005 | 01/01/2010 | 01/01/2015 | 01/01/2019 |
| Financial Year Applicable | 2004-05 | 2009-10 | 2014-15 | 2018-19 |
| Cost of acquisition | Rs. 5,00,000 | Rs. 50,00,000 | Rs. 50,00,000 | Rs. 1,00,00,000 |
| Cost Inflation Index in Acquisition Year | 113 | 148 | 240 | 280 |
| Date of Transfer | 25 August, 2024 | 25 November, 2024 | 25 January, 2025 | 25 March, 2025 |
| Financial Year | 2024-25 | 2024-25 | 2024-25 | 2024-25 |
| Consideration | Rs. 25,00,000 | Rs. 2,50,00,000 | Rs. 2,00,00,000 | Rs. 1,60,00,000 |
| Cost Inflation Index | 363 | 363 | 363 | 363 |
| Indexed Cost of Acquisition for the year of transfer | Rs. 16,06,195 | Rs. 1,22,63,514` | Rs. 75,62,500 | Rs. 1,29,64,286 |
| LTCG after indexation | Rs. 8,93,805 | Rs, 1,27,36,486 | Rs. 1,24,37,500 | Rs. 30,35,714 |
| LTCG without indexation | Rs. 20,00,000 | Rs. 2,00,00,000 | Rs. 1,50,00,000 | Rs. 60,00,000 |
| Income Tax As per Old Tax Rate | Rs. 1,78,761 | Rs. 25,47,297 | Rs. 24,87,500 | Rs. 607413 |
| Income Tax As per New Tax Rate | Rs. 2,50,000 | Rs. 25,00,000 | Rs. 18,75,000 | Rs. 7,50,000 |
| Which Tax Rate is Better? | Old | New | New | Old |
| Tax Savings | Rs. 71,239 | Rs. 47,297 | Rs. 6,12,500 | Rs. 1,42,857 |
From the above illustrations, it implies that if the value of the property is more than the inflation rate, then choose the new tax rate of 12.5% without indexation. Otherwise, one can go for the old rate @20% with indexation.