LTCG Rates for Real Estate: Benefits & Analysis

New Delhi, Jul 24 (PTI) The new long-term capital gains tax (LTCG) rates announced in the budget would be beneficial to property sellers, unless the price appreciation of the real estate is unrealistically low of less than 9 per cent per annum, sources said.

The budget has lowered the LTCG from 20 per cent to 12.5 per cent but removed the indexation benefits. The new rates have come into effect from July 23, 2024.

The indexation benefit allowed taxpayers to compute gains arising out of the sale of capital assets after adjusting for inflation.

The nominal returns on real estate are generally much higher than the inflation rate and often work out to be in the range of 12 per cent to 16 per cent. The indexation of inflation is mostly in the region of 4-5 per cent, depending on the period of holding, sources said.

Only where returns are low (less than about 9-11 per cent per annum), the earlier tax rate is beneficial but such low returns in real estate are unrealistic and rare. Such low returns arise only in 10 per cent of the cases, sources added.

As per an analysis by the income tax department, the new regime is beneficial for property held for 5 years when the prices have appreciated 1.7 times or more.

For property held for 10 years, it is beneficial when the value has increased to 2.4 times or more. For property purchased in 2009-10, if value has increased to 4.9 times or more, it is beneficial.