Changes in the tax rules related to real estate were announced in the Union Budget . This has raised many questions in the minds of property owners. The biggest question is whether they will have to pay more capital gains tax on selling the house?
Is the new income tax regime beneficial for them? Actually, two big announcements have been made for real estate in the budget. First, the long term capital gains tax on property has been reduced from 20 percent to 12.5 percent. Second, the benefit of indexation has been abolished. Moneycontrol has tried to know the impact of the changes in tax.
Properties analysed across different regions
Moneycontrol tried to find out the impact of the tax in six areas under different circumstances. Of these six areas, three are in South Delhi. These include Greater Kailash, Vasant Vihar and Defence Colony. Bandra West in Mumbai and Koramangala in Bengaluru were also included in the analysis. The prices in these areas during 2001, 2011, 2016 and 2022 were used for the analysis.
The new rules have the biggest impact on properties bought in 2011
The new rules will have the biggest impact on selling a property bought in 2011. For example, a 200 square yard house bought in Koramangala will now have to pay 69 percent more tax on its sale. The purchase price would be Rs 99 lakh and the selling price would be around Rs 2.52 crore. In the old income tax regime, the total tax that would have to be paid would be Rs 11 lakh, while in the new regime, the tax that would have to be paid would be Rs 19 lakh.
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Selling property bought in 2016 will attract higher tax
In Mumbai’s Bandra West, the difference in tax is even more. In the old regime, if a property bought in 2011 is sold now, taxpayers will suffer a capital loss of Rs 15 lakh. This could have been adjusted with other tax liabilities. In the new regime, the same taxpayer will have to pay LTCG of Rs 59 lakh. Even a property bought in 2016 will have to pay more tax if sold now.
Low tax on selling property in Vasant Bihar
For example, taxpayers will have to pay 150 per cent more tax on a house bought in Greater Kailash in South Delhi due to the change in tax rules. This is because in the new regime, the tax will increase from Rs 20 lakh to Rs 50 lakh. Similarly, if the property was in Defence Colony, the tax liability would have increased by 150 per cent. However, if a house bought in Vasant Vihar in 2016 is sold now, the taxpayer will have to pay only 66.7 per cent additional tax. This is less than the tax in Greater Kailash and Defence Colony.
The new rules provide more benefits for selling property purchased before 2001
This is because property prices in Vasant Vihar have increased more than in Greater Kailash and Defence Colony. Property prices in Koramangala, Bengaluru have increased the fastest since 2016. Therefore, taxpayers in Koramangala would have to pay only 25 per cent more tax. Moneycontrol’s analysis shows that the new rules will benefit properties purchased before 2001. Although inflation has increased significantly since 2001, property prices have increased even faster than that.
