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The Union Budget 2024 has introduced significant changes to the taxation of rental income and capital gains from property sales in India. These amendments aim to simplify the tax regime and curb avoidance strategies.
We tell you more about the key changes and their implications for property owners.
Starting April 1, 2025, rental income can only be taxed under the ""Income from House Property"" (IHP). This means taxpayers will be eligible for fewer deductions such as the 30% standard deduction, municipal taxes, and interest on home loans.
The government has reduced the long-term capital gains tax (LTCG) rate on property from 20% to 12.5%. However, it has also removed the indexation benefit, which allowed taxpayers to adjust the acquisition cost for inflation before computing gains.
Taxpayers can still save on LTCG tax by reinvesting the gains in a new residential house under Section 54 of the Income Tax Act. However, new conditions apply, including a cap on the maximum deduction at ₹10 crore and a 3-year lock-in period for the newly acquired house.
Section 194IA has been amended to clarify that each buyer must deduct 1% tax if their total payment for the property exceeds the ₹50 lakh threshold, regardless of the number of buyers/sellers or their respective shares.
These changes could temporarily dampen sales velocity, particularly for investors. However, the lower LTCG rate may incentivize short-term property investments if potential returns outweigh the loss of indexation.
Individuals and Hindu Undivided Families (HUF) must deduct tax on rent payments exceeding ₹50,000 per month. The Finance Minister has proposed reducing the tax rate from 5% to 2%.
In conclusion, the 2024 Budget has introduced sweeping changes to property taxation in India. Taxpayers should carefully evaluate their options and seek professional advice to navigate the new landscape.
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