New Rules for Real Estate Acquisition Costs and LTCG Tax

The Indian I-T department has clarified the calculation method for Long-Term Capital Gains (LTCG) tax on properties purchased before 2001. The fair market value (FMV) as of April 1, 2001, or the actual cost will be considered for acquisition costs. The FY25 Budget has reduced the LTCG tax rate to 12.5% from 20% for properties purchased after 2001, but the indexation benefit has been removed.

The Indian Income-Tax (I-T) department has outlined the method for computing Long-Term Capital Gains (LTCG) tax for real estate properties bought before 2001. The acquisition cost will now be the fair market value (FMV), not surpassing the stamp duty value as of April 1, 2001, or the actual cost of land or building.

The Fiscal Year 2025 budget cut the LTCG tax rate on real estate from 20 percent to 12.5 percent. However, it discontinued the benefit of indexation for properties purchased after April 2001. Indexation allowed taxpayers to adjust their capital gains with inflation figures, lowering the taxable amount.

The I-T department clarified that for properties acquired before 2001, the fair market valuation, not exceeding the stamp duty value, can be the basis for indexed price calculation. The indexed price is then deducted from the sale price to compute the LTCG, now taxable at 20 percent.