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Home » Income Tax On Property: There was a game in the budget, now there will be more tax on selling ancestral property too… understand with this easy formula

Income Tax On Property: There was a game in the budget, now there will be more tax on selling ancestral property too… understand with this easy formula

Last Updated on 25/07/2024 by Ankita Jain

An announcement has been made in Budget 2024, which will be a big blow to property sellers. A major benefit called indexation on selling property has now been removed. Although the Long Term Capital Gain Tax (LTCG on Asset) on selling property has been reduced by 7.5% to 12.5% ​​in the budget, but it will not provide as much relief as it used to. In simple words, now you will have to pay more tax (Tax on Property) on selling property than before.

Let us know in detail about this announcement made in the budget in simple language, how much tax will you have to pay if you sell a property? How much did you have to pay earlier and how can you calculate the tax on the income from your property?

LTCG tax on property was reduced in the budget, but…
In the budget on July 23, Finance Minister Nirmala Sitharaman made a big announcement on capital gain tax on property sale. Giving relief, the Finance Minister said that the 20 percent long term capital gain tax (LTCG) in real estate has been reduced to 12.5 percent. At first glance, it would seem that a big relief has been given by reducing the tax on selling property, but it is not so.

Actually, Finance Minister Nirmala Sitharaman has made another big change. The indexation benefit on selling property has been removed. Indexation was a tool that reduced the amount of profit that came under the purview of Long Term Capital Gain (LTCG) tax on selling property and after this LTCG tax (20%) was imposed on the remaining amount. Due to this, you had to pay less tax, but now you will have to pay more tax.

Long term capital gains tax in budget

How did indexation work?
However, to understand this tax structure on property, it is very important for you to understand indexation. Indexation was the benefit that adjusted the profit made on selling the property in the long term and inflation. Then tax was imposed on the property. To simplify it further, inflation was different 10 years ago, but today it is different. In such a situation, indexation adjusted the profit made on the property according to inflation and then tax (Capital Gains Tax) was imposed.

Let us know how indexation is calculated…

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

On which amount was tax levied earlier and now…?
After understanding indexation, you can now understand this tax structure on property with an example. Suppose if you bought a property in the year 2000 for Rs 20 lakh and sold it in 2009 for Rs 35 lakh, then you made a profit of Rs 15 lakh. But here you did not have to pay tax on the entire 15 lakh, the indexation benefit (Rs 29,92,288) was deducted from it. After this, LTCG tax of 20% would have to be paid on the remaining amount of Rs 5,07,712, but now 12.5% ​​tax will have to be paid on the entire 15 lakh.

  • According to the first rule, using the indexation method, 20% tax would have been levied on Rs 5,07,712, i.e., Rs 1,01,542 would have been paid as tax.
  • Now as per the new rule, you will have to pay 12.5% ​​tax on a total of Rs 15 lakh without indexation. That means you will have to pay Rs 1,87,000.

How to calculate indexing?
To calculate indexation, the Cost Inflation Index (CII) of the year the property was sold has to be divided by the Cost Inflation Index (CII) of the year the property was purchased. Whatever number comes, it has to be multiplied by the cost of acquisition i.e. the property purchase amount. Then you will get the indexation. Let us tell you that the CII for 2024-25 is 363.