Budget 2024: Capital gains taxes hiked, indexation benefit discontinued for property sale.

The scrapping of the indexation benefit on property sale will have a huge impact on the real estate market. Finance Minister Nirmala Sitharaman on Tuesday announced an increase in both long-term and short-term capital gains tax. The government has also proposed to do away with the indexation benefit for sale of property, which allowed property owners to adjust their gains for inflation. While the short-term capital gains tax has been increased from 15 per cent to 20 per cent, LTCG will be flat at 12.5 per cent. Deepak Shenoy, the founder of Capital Mind, said the scrapping of the indexation benefit will have a huge impact on the real estate market. “People who have held for 15 years and seen their prices double or such, would otherwise have not paid any capital gains tax due to indexation,” he wrote on X. Earlier, the tax on long-term gains for property sale was 10 per cent. As per definition, any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain. On the positive side, for the benefit of the lower and middle-income classes, Nirmala Sitharaman proposed to increase the limit of exemption of capital gains on certain listed financial assets from ₹1 lakh to ₹1.25 lakh per year. Listed financial assets held for more than a year are classified as long-term, while unlisted financial assets and all non-financial assets will have to be held for at least two years to be classified as long-term. “Unlisted bonds and debentures, debt mutual funds and market-linked debentures, irrespective of the holding period, however, will attract tax on capital gains at applicable rates,” Sitharaman said in her Budget speech. All these proposals will come into force immediately. Elaborating on the government’s decision, Nirmala Sitharaman said they wanted to simplify the approach to taxation, including the capital gains taxes. “Second, if anything, the average taxation has come down when we say it is 12.5%. We have worked out for each of the different asset classes…The point that we brought it down from below the average to 12.5% encourages investment in the markets,” he added.