The Union Budget 2024 introduced significant changes to income tax laws, particularly impacting real estate transactions. Let's delve into how these amendments will affect property owners and buyers.

Removal of Indexation Benefits

One of the most significant changes is the removal of indexation benefits for long-term capital gains on the sale of immovable property held for more than 24 months.

Previously, you could adjust the purchase price of your property for inflation using the Cost Inflation Index (CII), reducing your taxable capital gains. For instance, if you bought a plot for Rs. 1 crore in 2015 and sold it for Rs. 2 crore in 2024, your taxable gains would be less than Rs. 1 crore due to indexation.

Now, this benefit is gone. You'll pay tax on the full difference between the sale price and the original purchase price.

Reduced Long-Term Capital Gains Tax Rate

To offset the removal of indexation, the government has reduced the long-term capital gains tax rate from 20% to 12.5%.

Whether this is beneficial or not depends on how long you've held the property. For properties held for a long time, the reduced tax rate might outweigh the loss of indexation. However, for shorter holding periods, the impact could be negative.

Impact on Property Reinvestment

If you plan to sell your old home and buy a new one to avail of tax exemptions under Section 54 or 54F, the removal of indexation will affect you.

Section 54: You'll need to invest a larger amount in the new property to claim the exemption since your taxable capital gains have increased.

Section 54F: If you're selling a different asset and investing in a residential house, the removal of indexation doesn't directly impact you. However, if you don't invest the entire sale proceeds, your tax liability might increase due to the combined effect of higher taxable gains and the lower tax rate.

Tax Deduction at Source (TDS) Changes

Property Purchases: The threshold for TDS deduction on property purchases remains at Rs. 50 lakh. However, the clarification now states that TDS applies to the aggregate amount paid by all buyers, not individually.

Rent Payments: The TDS rate for rent payments by individuals and HUFs has been reduced from 5% to 2% if the monthly rent exceeds Rs. 50,000.

Conclusion

The Budget 2024 changes to income tax laws have far-reaching implications for real estate transactions. While the reduced tax rate might benefit some, the removal of indexation will generally increase tax burdens on property sales. It's essential to consult with a tax professional to understand how these changes affect your specific situation and plan accordingly.

Source: financialexpress.com