The government has now proposed some relaxation vis a vis its budget proposal relating to capital gains taxation on immovable properties u/s 112 of Income tax Act. The relaxation now proposed is applicable for individual residents and HUFs only and not applicable for corporates, LLPs and Non-Resident Individuals.
The Implications of this relaxation in budget proposal will be that long term capital gains tax on transfer of immovable property acquired before 23rd July,2024 will be lower of tax computed under new law I.e 12.5% without indexation and the tax computed under old law I.e @20% after indexation. This benefit of grandfathering is being allowed for immovable properties purchased by the specified persons before 23rd July 2024.
The amendment pertains to specified persons being resident individuals and HUFs who own immovable property purchased before 23rd July 2024. Developers who own immovable properties in companies and LLPs will not get any benefit of this amendment.
Moreover, developers’ income is taxed as business income and not as capital gains. so, they are not directly affected by the amendment. Further, immovable property purchased after 23rd July 2024 will continue to be taxed under the new law at 12.5% on LTCG without indexation benefits.
I believe investors will continue to invest in immovable properties for long term wealth creation irrespective of tax amendments. However, there may be a slight change in price of properties to attract investors if the RE market slows down due to tax implications.
