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Published: July 24, 2024
Updated: July 24, 2024

Budget 2024: Property Sellers Beware - Tax Liability to Shoot Up!

Indexation Benefit Bites the Dust

In a move that's set to rattle property sellers, Finance Minister Nirmala Sitharaman has announced the removal of the indexation benefit for property sales in Budget 2024. This means that sellers will no longer be able to adjust their purchase price using inflation, leading to a higher tax liability.

The Math Behind the Move

Let's break down the numbers to understand the impact. Suppose you bought a property for ₹50 lakhs and sold it for ₹70 lakhs. Under the old rules, you could adjust the purchase price using the Cost Inflation Index (CII), reducing the taxable capital gain. But with the new rule, the purchase price won't be adjusted for inflation, resulting in a higher tax liability.

Tax Liability: Then vs. Now

Here's a comparison of the tax liability under both the old and new tax rules:

Old Rules

- Purchase price: ₹50 lakhs
- Adjusted purchase price using CII: ₹64,82,000
- Sale price (2024-25): ₹70 lakhs
- Gain: ₹5,18,000
- Tax liability: ₹1,03,600

New Rules

- Purchase price: ₹50 lakhs
- Sale price (2024-25): ₹70 lakhs
- Gain: ₹20 lakhs
- Tax liability: ₹2,50,000

The removal of the indexation benefit for property sales in Budget 2024 will lead to a higher tax liability for property sellers. While the new tax rate of 12.5% may seem lower, the elimination of the indexation benefit will offset this reduction, resulting in increased tax obligations.