Budget 2024-25 Raises Minimum Capital Gains Tax on Real Estate to 15%
The 2024-25 budget introduces significant changes to capital gains taxation, particularly impacting real estate transactions. These changes aim to simplify the tax structure and potentially boost revenue from property dealings.
Expected Revenue Increase:
The government anticipates a revenue boost of over Rs. 60 billion with these changes.
Proposed Changes:
Effective July 1, 2024, the government proposes a major overhaul in the capital gains tax system for assets and shares, including real estate. The new system introduces a flat tax rate for all filers, irrespective of the holding period. The proposed changes are as follows:
For assets acquired on or after July 1, 2024: A flat tax rate of 15% will apply to all filers.
For non-filers: Tax will be imposed at standard slab rates ranging from 15% to 45%, regardless of the holding period.
This uniform rate aims to simplify the tax system and discourage short-term speculative investments in the property market.
Current Taxation Structure:
Under the current regime, capital gains from real estate are taxed based on the holding period, with tax rates decreasing over time. This tiered approach encourages long-term holding of property.
Comparison of Current and Proposed Tax Slabs:
The proposed flat tax rate of 15% for all filers contrasts with the tiered system based on holding periods under the current regime.
Comparison of Current and Proposed Tax Slabs:
Holding Period | Current Tax Rate | Proposed Tax Rate (Filers) | Proposed Tax Rate (Non-Filers) |
1 year | 15% | 15% | 15% – 45% |
2 years | 12.5% | 15% | 15% – 45% |
3 years | 10% | 15% | 15% – 45% |
4 years | 7.5% | 15% | 15% – 45% |
5 years | 5% | 15% | 15% – 45% |
6 years | 2.5% | 15% | 15% – 45% |
After 6 years | 0% | 15% | 15% – 45% |
Impact on Real Estate Transactions:
The shift to a flat tax rate is expected to standardize the tax burden, potentially impacting investment decisions and market dynamics:
- Increased Revenue: The government foresees a significant revenue increase due to this uniform tax rate.
- Investment Decisions: Investors may reconsider strategies, as holding property for longer periods will no longer provide tax advantages.
- Market Dynamics: The change could lead to fewer transactions, given the overall increase in taxation for the market.
