Last Updated on August 6, 2024 at 11:10 pm
Taxation on Sales of Real Estate Bought Before April 2001 requires more clarity from the government.
Update: Finance Bil 2024 has been amended. Taxpayers can now choose either 12.5% without indexation or 20% with indexation, whichever is lower for LTCG on property.
Are indexation benefits available for selling properties purchased before 1st April 2001?
Our understanding: No. (Thanks to tax expert Manmohan Sethumadhavan for patiently answering my questions).
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The finance secretary, Sanjay Malhotra, said,
Indexation benefit till 2001 shall continue. Which means that if a property was bought before 2001 and if it is sold after 2001 the price of that property when it was bought or the price with indexation in the year 2001, whichever is lower, the price as it existed in 2001 or that cost acquired prior to 2001 with indexation whichever is lower gets the benefit of indexation till 2001. However, after that, whatever the increase in the value of the property will be taxed at 12.5% flat without any benefit of indexation after 2001.
This means (thanks to reader Praveen for this), “I bought in 1995, I’ll get indexation benefit from 1995 until 2001. After that, I will not get the indexation but will pay flat 12.5% on gains made between indexed value /FMV as of 1.4.2001 and the sale price now.”
However, a tweet by the Income Tax of India handle confuses things. It said:
✅An issue has been raised as to what would be the Cost of Acquisition as on 1.4.2001 for properties purchased prior to 2001.
✅For properties (land or building or both) purchased prior to 1.4.2001, the cost of acquisition as on 1.4.2001 shall be:-
✅Cost of Acquisition of the asset to the assesse; or
✅the Fair Market Value (not exceeding the stamp duty value, wherever available) of such asset as on 1.4.2001.
✅Taxpayers can choose either option as per section 55(2)(b) of the Income-tax Act, 1961.
An illustration to explain the same:
This illustration uses indexation right up to the current FY.
Economic Times reported, “The Finance Ministry has clarified that assets bought before 1 April 2001 will continue to get the indexation benefit”.
But the revenue secretary says this indexation is only up to 2001. The tweet mentioned above is silent on this. I believe the example only shows how the new rule is beneficial. More clarity is required.