Benefits from Removal of Indexation in House Property

  

Dear Avid Reader,

In the recent budget 2024-25, it has announced for multiple changes in the taxation structure. A biggest change was in the indexation benefit in the Indian Taxation System. Now, indexation is fully eliminated, from the capital gains of all asset classes, including house property.

 

Then, what does it mean to you, as a house owner?

It has simplified in calculating tax liability, by minimal adjustment in the LTCG.

 

What is the change through Union Budget 2024?

First, LTCGs are considered when house property is hold for 2 Years or more. If you own it, and sell the same, by holding the same property for more than 2 Years. If sold with increase in price, then it will be treated as capital gain. Then, you will be liable for LTCG Tax.

 

What is the New Taxation Structure for you?

Capital Gains (On the Basis of Holding Period)	Real Estate Taxability
STCG	20%
LTCG	12.5%

 

How it will benefit you (Advantages)?

1.       Encouragement for Traditional Approach of Investment (Long Term)

2.       Don’t Steer Away by Inflation, lower taxation is better than indexation

3.       Simple to calculate your tax liability

4.       Careful purchase of House Property, considering its taxability.

 

How to avoid LTCG Tax on your property?

To avoid or minimize Long-Term Capital Gains (LTCG) tax on real estate capital gains, there are several options available under the Income Tax Act in India. Here are some of the most common strategies:

1.   Section 54: Purchase or Construction of a Residential Property
Limitation:
Available for only 1 Residential Property
It must be purchased within 1 Year or 2 Years after the sale or constructed within 3 Years from sale.

2.   Section 54F: Investment in Residential House Property
Limitation:
Entire sales proceeds must be invested in a new property.
Should not be owning more than 1 house property.
It must be purchased within 1 Year of sale or 2 Years after the sale or constructed within 3 Years from sale.

3.   Section 54EC: Investment in Specified Bonds: NHAI, RECL, PFC and IRFC
Limitation:
Investment should be in specified bonds issued by NHAI, RECL, PFC and IRFC, within 6 Months from the date of transfer.
Maximum Investment should be ₹50 LAKHS only.
Bonds will have lock-in period of 5 Years.

 

By strategically utilizing LTCG from house property in these specified ways, you can effectively minimize your tax liability while aligning with your investment goals. The elimination of indexation for LTCG on house properties simplifies tax calculations. Utilize Sections 54, 54F, and 54EC to minimize LTCG tax liability by reinvesting in residential properties or specified bonds. This encourages long-term investments, offering a straightforward and efficient approach to managing real estate gains.

This guide simplifies the taxability, but remember, consulting a professional advisor can help navigate any complexities in your financial decision.