The government took a gamble in the budget, played a game in property tax, people will suffer huge losses, understand the math

Budget 2020: An announcement has been made in Budget 2024, which will be a big blow to those selling property. A big benefit called indexation on selling property has now been removed. Apart from this, the long-term capital gains tax on property sale has been reduced from 7.5 per cent to 12.5 per cent in the budget. So there will be no relief in that either. In simple words, more tax will have to be paid on selling property than before.

With such an announcement in the budget, how much tax will have to be paid on selling the property and how much the burden is likely to increase, let us know about it…

LTCG tax on property reduced in the budget

In the budget of July 23, Finance Minister Nirmala Sitharaman made a big announcement regarding capital gains tax on property sales. Giving relief, the Finance Minister said that the 20 percent long term capital gains tax (LTCG) in real estate has been reduced to 12.5 percent. At first glance, it seems that reducing the tax on property sales will provide great relief, but it is not so.

Indexation benefit removed

Actually, Finance Minister Nirmala Sitharaman has made another big change. Indexation benefit on sale of property is abolished. Indexation was a tool that reduced the amount of profit subject to long-term capital gains (LTCG) tax on the sale of property and then imposed LTCG tax (20%) on the remaining amount. This used to make you pay less tax, but now you will have to pay more tax.

How does indexation work?

However, to understand this tax structure on property, it is very important to understand indexation. Indexation was a benefit that adjusts the profit on the sale of property for inflation. Property tax is later levied. Inflation was something else 10 years ago, but today it is something else. In such a situation, indexation was used to levy tax (capital gains tax) after adjusting the profit on property for inflation. CII stands for Cost Inflation Index.

Let us know how indexation is calculated…

(Indexation = CII of the year sold/CII of the year purchased x purchase price of the property)

On which amount was tax levied earlier and now…?

After understanding indexation, now you can understand the tax structure on property with an example. Suppose if in the year 2000 you bought a property for Rs. 20 lakhs and in 2009 for Rs. 35 lakhs, then you will get a profit of Rs. 15 lakhs. But here you have to pay the entire Rs. 15 lakhs is not taxed, indexation benefit (Rs 29,92,288) is deducted from it. Later Rs. 5,07,712 will have to be taxed at 20% LTCG, but now 12.5% ​​​​tax will have to be paid on the entire Rs. 15 lakhs.