A guide to capital gains tax on property sales: Navigating pre- and post-2001 rules

livemint.com:

For real estate owners, especially those with long-held properties, the provisions of the Union Budget 2024 came as a rude shock, leaving them scrambling to decipher the new tax landscape.

The overhaul in capital gains tax rules has sparked confusion, especially with the removal indexation benefits. The revised provisions now impose a 12.5% levy on long-term capital gains (LTCG), while short-term gains remain taxed at slab rates. The elimination of indexation, a key tool for reducing tax liabilities on older properties, has left many property owners in a difficult position.

As the dust settles, experts are urging homeowners to carefully reassess their financial strategies, particularly considering the deductions that can still be applied to the cost of acquisition.

For instance, take Mr A, who purchased a house on 15 October 1990, for ₹15 lakh. He spent ₹2.5 lakh on repairs in 2000 and another ₹3 lakh in 2010. Now, Mr A seeks to determine which expenses can be added to the cost of acquisition when selling his house. Notably, the initial stamp duty, costs for improvements and any brokerage or legal fees paid during the purchase, can all be included in the cost of acquisition (CoA).

“The cost of acquisition is the basic price agreed to be paid to the seller and includes stamp duty, registration fee and transfer fees (if applicable). Expenses such as brokerage and legal fees, if these are directly connected with the transaction of purchase of the property, also form part of it. GST on purchase of under-construction property can also be added to it," said chartered accountant Nitesh Buddhadev, founder of Nimit Consultancy,

While chartered accountants were confident that stamp duty is included in the CoA, confusion surfaced