Simplified Laws Guide to Taxation and Legal Concern How is the budget? The corporate world says it’s great! Ask the middle class and they say both the rich and the poor are benefitted while they are left high and dry. Day traders and traders in Stocks are unhappy due to the increased tax rates. Several amendments have been made providing ample content for seminars and webinars; so the show hosts are happy, so are the speakers!
For me, the most significant change is the removal of indexation on capital gain from property sales.
To illustrate –
Mr Aravind purchased a flat in Brigade in 2005-06 for Rs.54,00,000
Selling in July 2024 for Rs.1,50,00,000.
Prior to 23rd July 2024 – His gain was calculated by indexing the purchase cost. The indexed cost of purchases works out to Rs.1,67,00,000. His sale price is Rs.1,50,00,000, making a net loss of Rs.17,00,000. He would have paid NIL taxes.
After 23rd July 2024 – He can’t index the purchase price! So, the capital gain is Rs.1,50,00,000 minus Rs.54,00,000, i.e., Rs.96,00,000. He has to pay taxes of Rs.13,72,800 (Tax rate is 12.50%+10%surcharge on it, plus 4% cess)
A significant tax outgo. Isn’t it?
That’s not all. Suppose, Mr. Aravind had also sold equity shares with a profit of Rs.15,00,000, the loss on the sale of property also would have been adjusted against the profit. Now, he ends up paying taxes of Rs.2,14,500 on the equity sale.
The total tax outgo in the above case is Rs.15,87,300.
Newly added para on 10th August 2024 – after the amendment to the budget proposal
The Government has now given the option to the RESIDENT Individuals and HUFs to choose between the old regime (20% with indexation) or the new regime (12.5% without indexation) and adopt whichever is beneficial to them. This option is available only to the properties purchased up to 23rd July 2024.
In short
- Resident Individuals and HUF – old or new regime option is available
- NON-RESIDENT Individuals – Only the new regime is available
- Resident Individuals and HUF – purchased after 23rd July 2024, only new regime is available.
What for those who intend to sell the property purchased after 2001?
Purchased prior to 2001 – Those who bought or inherited the property before 2001, will continue to avail of the indexation benefit (as per FM Statement). It appears like some relief on paper. However, the practical benefit is minimal due to the typically low purchase prices of properties before 2001. But they benefit from the lower tax rate.
Tax Rate –
Old tax rate for long-term capital gain: 20% + Surcharge + cess
New tax rates: 12.50% + Surcharge + Cess.
What is lost in indexation benefits is partially offset by reduced tax rates. However, based on experience from past cases, taxpayers will likely pay higher taxes (some cases with lower purchase cost, there will be benefit also), even with the reduced rates.
Is the new amendment a welcome change?
Yes, for the government
Yes, for Resident Individuals
No, for the NRI taxpayers!!!!
