The 2024-25 budget has introduced significant changes to the taxation regime for capital gains, particularly affecting immovable property such as real estate. These changes aim to simplify the tax structure and potentially increase revenue from property transactions.
The government is expecting an increase in tax revenue of over Rs. 60 billion with this new regime.
Starting July 1, 2024, the government has proposed a major overhaul in the capital gains tax system for assets and shares, including immovable property. The new system introduces a flat tax rate on everyone and eliminates the benefits associated with longer holding periods which used to benefit the common man and tax businessmen. The proposed changes are as follows:
This uniform rate aims to simplify the tax system and potentially discourage speculative short-term investments in the property market.
Under the current regime, capital gains from the disposal of immovable property are taxed based on the holding period. The longer you hold the property, the lower your tax rate. The applicable tax rates are tiered as follows:
This current tiered approach encourages long-term holding of property by reducing the tax burden over time thus taxing the real-estate-related businessmen more than the common man who sells their property in times of need.
| Holding Period | Current Tax Rate | Proposed Tax Rate (Filers) | Proposed Tax Rate (Non-Filers) |
|---|---|---|---|
| 1 year | 15% | 15% | 15% – 45% |
| 2 years | 12.5% | 15% | 15% – 45% |
| 3 years | 10% | 15% | 15% – 45% |
| 4 years | 7.5% | 15% | 15% – 45% |
| 5 years | 5% | 15% | 15% – 45% |
| 6 years | 2.5% | 15% | 15% – 45% |
| After 6 years | 0% | 15% | 15% – 45% |
The shift to a flat 15% tax rate on immovable property aims to standardize the tax burden regardless of how long the property is held. This change will likely have several impacts:
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