Latest Changes in Property Taxation

As we know, the definition of Capital Asset u/s 2(14) includes property of any kind held by the assessee, whether or not connected with business or not. If there is any gain or profit from the transfer of capital assets then it shall be chargeable to tax under the head "Capital Gain" in the previous year in which the transfer took place. As per the above definition, the capital asset includes immovable property hence if we sell immovable property then any profit or gain that arises from the transfer of that immovable property shall be taxable under the head "Capital Gain" in the year in which such property is sold.

For e.g. If property is sold in the year 2023-24 then any profit or gain arising from such property shall be taxable as Capital gain in the year 2023-24. Sometimes question arises in an ordinary person's mind if we sell residential property then why do we need to pay tax as we not consuming this property in our business or it is not commercial property? Now it is important to note that definition of capital asset has been drafted in such a way that it includes both residential as well as commercial property therefore we have to pay tax on the sale of property irrespective of the nature of property. Our Honorable Finance Minister "Nirmala Sitharaman Ji" in the recent Final Budget of 2024 has proposed some important changes regarding taxation of property that will be discussed further in this article.

Pre-Budget Position on Property Taxation

Type of Capital Gain on Sale of Property

If the immovable property, being land or building, is sold after 24 months from the date of purchase then it shall be classified as Long Term Capital Assets and if it is sold before 24 months from the date of purchase then it shall be classified as Short Term Capital Assets.

Now the question arises why we need to divide the immovable property into Long Term Capital Asset and Short Term Capital Asset. This is because applicability of rate of tax on sale of capital asset is different on both Long Term Capital asset as well as Short Term Capital asset which are discussed below-:

For Long Term Capital Assets (i.e. immovable property sold after 24 months)

As per section 112 of Income tax Act, 1961 If we sale the Long Capital Asset then any profit or gain arises from sale of such property shall be taxable at flat rate of 20%.

For Short Term Capital asset (i.e. immovable property sold before 24 months)

If we sale the Short Term Capital Asset then any profit or gain arises from sale of such property shall be taxable at normal tax rates i.e. slab rate as applicable.

Particulars

STCG on Property

LTCG on sale of Property