Several recent changes have been made to India’s Income Tax Act. The Finance (No. 2) amendment, in particular, could have a significant impact on property purchases and sales. Even if you have zero capital gains on the sale of your grandparents’ property, you may have to pay tax. Let’s find out how this became possible.
Property prices across the country are rising rapidly. While this burdens buyers with higher prices, sellers are also reaping substantial profits. Obviously, if a property sale results in a profit of millions, taxes will undoubtedly be payable. However, tax savings can be realized through income tax.
Meanwhile, Taxbuddy.com and chartered accountant Dr. Suresh Surana have highlighted a major issue with the current income tax law. They explain that even if a taxpayer doesn’t realize any long-term capital gains (LTCG) from the sale of their property, they will still have to pay tax.
TaxBuddy.com shared an incident on the social media platform X on August 22nd. It explained that Ramesh had to pay an additional tax of ₹61,360, even though he had no capital gains . A 10% surcharge applies to properties.
Know how surcharge is levied on sale of property
According to a report in the Economic Times, chartered accountant Dr. Suresh Surana said that the Finance (No. 2) Act, 2024, has changed the tax treatment of LTCG for property sale transactions. Indexation of cost is no longer permitted under the provisions of Section 48 for property sale transactions occurring on or after July 23, 2024.
Surana says that capital gains are calculated as the difference between the sale price and the original cost for purposes of income calculation. No inflation adjustments are made. Section 112 of the Finance Act (No. 2), 2024, changes the applicable tax rate to 12.5%.
However, a grandfathering benefit has been added for resident individuals and HUF taxpayers who sell land or buildings acquired before July 23, 2024. Accordingly, if the tax added under the old capital gains tax regime (20% with indexation) is less than the new 12.5% (without indexation), the additional tax will be ignored. In other words, such taxpayers effectively pay tax at the lower rate of the above options.
Surana further states that the point now is that this relief applies only at the stage of tax commutation. This changes the amount of gain included in the total income. Under Section 48, the entire, non-indexed gain should be considered part of the total income, even if no tax is ultimately payable on that portion under Section 112 due to the grandfathering provision.
Know when the surcharge is applicable
According to Surana, this distinction becomes crucial when determining the surcharge. Surcharge is levied when the total income exceeds the prescribed limit of Rs 50 lakh to Rs 1 crore. In fact, the total income includes non-indexed capital gains. Therefore, any taxpayer with such gains may face a higher surcharge, even if the additional capital gains tax is not applicable.
Case study on the impact of surcharge on property sales
Tax
Bought on January 1, 2024 for Rs 1.30 crore and then sold it for Rs 2 crore.
Other Income – Rs 30,00,000 (Bank Interest and Salary)
CII 2013-14 = 220; 2024-25 = 363 → Indexed cost Rs 2.145 crore
TaxBuddy explained how this happened.
Income Rule – LCG on land, building is non-indexed for income from 23rd July 2024.
Tax rules: Those acquiring before July 23, 2024, will have to compare 12.5% versus 20% due to indexation and will pay less. This reduces the amount, not the income, which is subject to a surcharge.
Key Points
Same house, same buyer, same price, only your surcharge band changed from the date of transfer.
April 1, 2024: Income Rs 30 lakh → Rs 6,13,600 tax
January 1, 2025: Income Rs 1 crore → Surcharge applicable → Tax Rs 6,74,960
Chartered accountant Suresh Surana further explained that for transactions prior to July 23, 2024, taxpayers incurred a long-term capital loss of ₹1.45 million after applying indexation. There was no taxable capital gain, and the total income included only ₹3 million of other income (salary and bank interest). Since the total income did not exceed ₹5 million, no surcharge was applicable, and the tax liability was limited to the slab rate of ₹3 million plus surcharge. Suresh further explained that after July 23, 2024, the non-indexed long-term capital gain, after removing indexation, was calculated to be ₹7 million.
In the case of property, the transaction tax was zero. This is because both options applied 12.5% without indexation and 20% with indexation. However, the gain of ₹7 million was included in the total income calculation. This increased the taxpayer’s total income from ₹3 million to ₹1 crore, subject to a surcharge.
Tax levied above Rs 61,000 without capital gains
Suresh says that surcharges apply when the total income exceeds Rs 50 lakh. In this case, a 10% surcharge was levied on the basic slab tax of Rs 5.9 lakh. This resulted in an additional liability of Rs 59,000, plus a small surcharge. Overall, the property transaction resulted in an additional tax of Rs 61,360, despite the absence of long-term capital gains.
We have taken all measures to ensure that the information provided in this article and on our social media platform is credible, verified and sourced from other Big media Houses. For any feedback or complaint, reach out to us at businessleaguein@gmail.com
Add businessleague.in as a Preferred Source
