Next time when you wish to sell your two year old property, tax liability would be lower than the past, thanks to Budget 2017 -18. Before this budget, property sell was subjected to short term capital gains tax (STCG) if purchase period has not completed 3 years. Now property sale is subjected to Long Term Capital Gains tax (LTCG) for more than two year holding period. The rate for LTCG tax works out to be lower compared to short term capital gains (STCG) tax.
On property sell, LTCG is paid either at 10% or 20% after adjusting for inflation. STCG is taxed as per the income tax slab, which comes to 30% if the gains are Rs 10 lakh or more.
This move will reduce the capital gain tax liability and encourage the mobility of assets. This may help to revive the property market that has suffered due to demonetisation.
Also, the base year for indexation calculation is proposed to be shifted from 1.4.1981 to 1.4.2001 for all classes of assets including immovable property. This means that any property that was purchased before 1981 will be calculated at the Fair Market Value (FMV) of 2001, which could be closer to the current market prices. As property prices went up by 2001, the cost of acquisition will be higher, and so the capital gains will be lower and hence the tax liability will be lower. The change in the base year will positively impact gold, silver, bonds and other asset classes where you can avail indexation benefit.