New LTCG rule on property to hit homeowners hard: Below 9% annual property price growth, common in many cities, could mean higher loss now
indexation benefit on property. Now, homeowners are required to pay a flat 12.5% long-term capital gain tax on the gain they make by selling the property. The new rule is one of the most significant budget proposals, especially for homeowners planning to sell their property. While the finance ministry claims that a majority of homeowners will be better off under the new rule, ET Wealth’s analysis paints a different picture and shows that some homeowners will even face a double blow. Here is a detailed analysis and also suggestions on how you can minimise the adverse impact.
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Homeowners with stagnant price or lower price growth are the biggest sufferer
While the new rule has removed the use of indexation, it has brought down the tax rate from 20% to 12.5%. This has created a confusion as to who are likely to benefit from this rule and who are likely to be the losers.
Any property purchased before April 1, 2001, enjoys grandfathering provision under which its fair market value on this date is taken as the acquisition cost of the property. If the property was purchased after March 31, 2001, the actual acquisition cost is used to calculate the capital gains.
To understand the impact of this new rule, we analysed the impact of the new rule across various periods from 2004 to 2019. We found that this rule hits hard people who have already been a victim of
