Changes in Real Estate Long-Term Capital Gains Tax need attention
By ANAND K RATHI
The Union Budget 2024 places a strong emphasis on agriculture, aiming for self-sufficiency, particularly in edible oils and pulses, which are heavily consumed in India. Addressing employment concerns highlighted in the economic survey, the budget also promotes job creation and skill development.
Manufacturing and services, especially MSMEs are key areas of focus. Additionally, securing energy resources is a priority and the emphasis on infrastructure, evident in the interim budget, continues to be a significant focus.
Taxation and Investor Policies
One significant but underrated positive move is the abolition of angel taxes. This will benefit the startup ecosystem by reducing tax related concerns for entrepreneurs and fostering innovation. The Finance Minister’s decision to eliminate the angel tax is commendable.
Relief for Salaried Employees
For salaried employees the most significant change is the increase in the standard deduction from 50,000 to 75,000 rupees, which is a welcome relief. Additionally, with the adjusted tax slabs, the net tax savings will amount to 17,500 rupees. While we always hope for higher savings, the amount is still beneficial.
Fiscal Policy and Debt Markets
An important update for the debt market is the government’s firm commitment to fiscal path consolidation, also known as fiscal gliding. The government has pledged to reduce the fiscal deficit.
This year’s fiscal deficit is expected to be 4.9% marking the first time it has fallen below 5%. Next year, it is projected to be 4.5%. This is excellent news for our currency and bodes well for stability in interest rates. We hope the government successfully achieves these targets.
Customs Duties
There have been some changes to customs duties, notably the reduction of duties on gold and silver to 6% and on platinum to 6.5%. As a result, gold prices have seen a significant correction, dropping by about 5-6%.
Increase in Long Term Capital Gains Tax and Exemption Limit
The FM also aims to send a clear message to the investors: avoid short term trading and leveraging. This is reflected in the increased security transaction taxes on futures and options, which is a positive step. However, the increase in short term capital gains tax from 15% to 20% is a notable drawback for many traders.
While the tax rates on long-term capital gains have increased from 10% to 12.5%, the exemption limit has also risen from 1 lakh to 1.25 lakh rupees. Previously, if your capital gain was 2 lakh rupees, 1 lakh was exempted, and you had to pay 10% on the remaining 1 lakh, amounting to 10,000 rupees. Now, with the same 2 lakh rupees capital gain, you would pay 12.5% tax on the remaining 75,000 rupees after the exemption, which is beneficial.
Changes in Real Estate Long-Term Capital Gains Tax
A significant but lower change concerns real estate long term capital gains. Previously, selling real estate after two years entitled you to an indexation benefit. Now there is no indexation benefit and you have to pay a tax of 1.5% which is quite substantial. This change warrants more attention.
