Union Budget 2024: Changes in Capital Gains Tax Aim to Simplify, Impact Real Estate Market

Finance Minister Nirmala Sitharaman unveiled significant revisions to capital gains taxes in the Union Budget 2024, aiming to streamline the tax structure while impacting various asset classes, particularly real estate.

Under the new provisions, the short-term capital gains tax has been raised from 15% to 20%, while long-term capital gains (LTCG) will now be taxed uniformly at 12.5%, previously 10%. Additionally, the indexation benefit, which allowed property owners to adjust the purchase price for inflation when calculating capital gains tax, has been eliminated. This change is expected to have a profound effect on long-term property holders who benefited from reduced tax liabilities through indexation.

In a move aimed at benefiting lower and middle-income groups, Sitharaman proposed an increase in the exemption limit for certain listed financial assets’ capital gains from ₹1 lakh to ₹1.25 lakh annually. However, unlisted financial assets and all non-financial assets must now be held for at least two years to qualify for LTCG status.

Explaining the rationale behind these changes, Sitharaman emphasized a simplification of the tax regime and asserted that the average taxation rate had effectively decreased to 12.5%, which she believed would incentivize greater investment in the markets.

The announcement has sparked mixed reactions, with analysts highlighting potential impacts on investment behavior and the real estate market, while proponents argue the changes will foster a more straightforward tax environment.

Overall, the Budget’s adjustments to capital gains tax are poised to reshape investment strategies and financial planning across sectors, reflecting the government’s broader economic agenda.