I am 71 years old and I have sold my house in Delhi for Rs 90 lakhs. If I don’t want to buy a new house with this money or reinvest in any new commercial property, how much total tax, capital gains and others, will I have to pay this financial year?
Name withheld
Reply by CA (Dr.) Suresh Surana
As a 71-year-old senior citizen, after selling your house in Delhi for Rs 90 lakhs, you may be liable to pay capital gains tax depending on various factors. If a taxpayer sells a house and decides not to reinvest the proceeds in another property, they may be liable to pay capital gains tax on the sale. The tax treatment depends on whether the gains are classified as short-term or long-term.
Ø For Short-Term Capital Gains (STCG): If the house property was held for up to 24 months before selling, any gains are considered short-term. STCG would be taxed in accordance with the slab rates applicable to the taxpayer plus applicable surcharge and cess.
Ø Long-Term Capital Gains (LTCG): If the property was held for more than 24 months before selling, any gains are considered long-term. LTCG is taxed at 12.5% with no indexation benefits. However, the taxpayer would be eligible to opt for taxing such capital gains at 12.5% without claiming the benefit of indexation or at 20% post claiming the benefit of indexation, whichever is more beneficial in case where such house property is purchased or acquired before 23rd July 2024.
It is to be noted that the above-mentioned capital gains tax deduction shall be a one-time payment and shall not be allowed to be deferred in the upcoming financial years.
Capital Gains Tax Regime in India
In the Union Budget this year, Finance Minister Nirmala Sitharaman announced a rise in the long-term capital gains (LTCG) tax rate for all financial and non-financial assets to 12.5 per cent, up from the previous 10 per cent. Concurrently, the exemption threshold for LTCG on these assets saw an adjustment from Rs 1 lakh to Rs 1.25 lakh.
Furthermore, the tax rate for short-term capital gains (STCG) has been increased to 20 per cent, up from the earlier 15 per cent. These amended rates on both LTCG and STCG will take effect starting from July 23. She also doubled the Securities Transaction Tax (STT) on futures & options (F&O) of securities.
From July 23, 2024, the long-term capital gains (LTCG) tax rate applicable to property transactions was reduced to 12.5%, marking a notable change from the prior regime. The previous system imposed a 20% tax on LTCG from the sale of land or buildings, allowing taxpayers to leverage indexation benefits. Indexation facilitated adjustments to the cost of acquisition and improvements to account for inflation, thereby mitigating taxable gains or increasing losses.
However, the revised capital gains tax framework implemented on July 23, 2024, heralded the elimination of indexation, instead establishing a flat 12.5% tax rate on LTCG across all asset categories. With indexation no longer in effect, the original cost of acquisition and improvements remains unadjusted for inflation, necessitating the consideration of the initial cost during capital gain calculations.
Consequently, under the New Tax Regime, taxpayers encounter larger capital gains or reduced losses compared to the older capital gains tax system due to the absence of indexation adjustments.
The government has also introduced a grandfathering provision to assist taxpayers in adapting to the new capital gain tax regime. Under this provision, resident individuals or resident HUFs have the option to select either the old or new capital gain tax regimes for property, land, or building acquired before July 23, 2024. This provision guarantees that taxpayers will not be subjected to increased taxes on gains under the new regime as opposed to the old regime.