The budget presented on 23rd July 2024 has drastically changed the long-term capital gains taxation scheme. The benefit of indexation has been removed for the computation of long-term capital gains except for payment of tax on long-term capital gains arising on the sale of land or building by a resident individual or an HUF. An individual and HUF have two options for tax payment on long-term capital gains arising from the sale of land or building acquired before 23rd July 2024. In such a case, the individual or the HUF can pay tax which is more beneficial – lower of the tax payable either at 20% on indexed long-term capital gains or @ 12.50% on unindexed long-term capital gains. Since the indexation results in long-term capital loss, you will not have any liability to pay the tax in respect of the sale of your house or any other immovable property..
| Sr. | Nature of transfer | For transfer of capital assets before 23 July 2024 | For transfer of capital capitals on or after 23 July 2024 | ||
| Period of holding | Tax rate | Period of holding | Tax rate | ||
| 1 | STCG referred to in section 111A | Less than 12 months | 15% | Less than 12 months | 20% |
| 2 | LTCG referred to in section 112(1)(a)/(b)/ (c)(i)/ (c)(ii) and (d) [other than capital gains referred to in section 10(33) and 10(36)] | Unlisted shares, property (land/ building) – more than 24 months | 20% (with indexation benefit) | More than 24 months | 12.50% |
| Others – more than 36 months | (no indexation benefit) | ||||
| 3 | LTCG referred to in section 112(1)(c)(iii) | More than 24 months | 10% | More than 24 months | Not applicable for transfers on or after 23 July 2024 |
| 4 | LTCG referred to in section 112A exceeding INR 1.25 lacs | More than 12 months | 10% | More than 12 months | 12.50% |
Tax Implications of Selling Residential Property Under New Capital Gains Rules
As per Section 74 of the Income Tax Act, 1961, Losses under the head Capital gains “in so far as such loss relates to a long-term capital asset, it shall be set off against income, if any, under the head “Capital gains” assessable for that assessment year in respect of any other capital asset not being a short-term capital asset”. It means that long term capital loss can be setoff against long term capital gain only. On a plain reading of the provisions, you can infer that one can set off the indexed long-term capital loss on the sale of your house against the long-term capital gains against long-term capital gains from listed shares, but this is not so.
As per Section 70 of the Income Tax Act, 1961, Set off of loss from one source against income from another source under the same head of income “Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any capital asset (other than a short-term capital asset) is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset not being a short-term capital asset.” This implies, that the benefit of indexation is available only for the limited purpose of computation of tax liability in respect of long-term capital gains arising from the sale of land or building of an individual or a HUF. Still, it is not available for the purpose of computation of long-term capital gains for setting off long-term losses from one asset against another asset. The logic is that while calculating capital gain from shares there is no indexation benefit and therefore only those loss would be allowed to set off which has been derived without indexation.
This concludes that though your tax liability in respect of the sale of your house property will be nil or loss in case of indexation, for the long-term capital gains on the sale of listed shares, you will have to pay tax at a flat rate of 12.50% after the initial 1.25 lakh, on which zero rate of tax is to be applied without any adjustment for indexed long-term capital gains on the sale of your house property.