Finance Khabar: The government has introduced a new rule for people selling properties that affects how much tax they have to pay on the profit they make, known as long-term capital gains or LTCG.
What is Indexation?
Indexation is a method used to adjust the buying price of your property to account for inflation over the years. This means if you bought your property a long time ago, its original price is increased on paper to reflect today’s value, reducing the profit you made on paper when you sell it. This helps lower the amount of tax you have to pay.
Recent Changes:
In the 2024-25 budget, the government first said they would lower the tax rate on the profit from selling property to 12.5% but remove the indexation benefit.
To fix this, the government has now given property sellers a choice. If you sell your property before July 23, 2024, you can choose to pay a 20% tax with the indexation benefit or a 12.5% tax without the benefit, depending on which option results in you paying less tax.
This choice is especially helpful for those who bought their properties many years ago at much lower prices. For example, if you bought a house long ago for Rs 25 lakhs and now it’s worth Rs 3 crores, you can choose the 20% tax rate with indexation. This might reduce your tax bill because the indexation adjusts your original buying price closer to the current value.
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