Long-term Capital Gain on Sale of Immovable Property-112
IMMOVABLE PROPERTY
Under the Income Tax Act, 1961, the term "immovable property" is defined to include any land, building, or any part thereof. Namely residential flats, houses, commercial properties, and plots.
APPLICABILITY OF SECTION 112
This section applies to individuals, companies, Hindu undivided families (HUF), residents, non-residents, firms, and foreign companies.
But doesn’t apply to companies incorporated outside India (CIOI).
CLASSIFICATION BASED ON HOLDING PERIOD
The classification of immovable property into long-term and short-term is based on the holding period of the property.
Short-term capital Gain (STCG): A short-term capital gain occurs if the immovable property is sold within 24 months (i.e., 2 years).
Long-Term Capital Gain (LTCG): There is a long-term capital gain if the immovable property is held for more than 24 months (i.e. 2 years) before being sold.
The holding period is measured from the date of acquisition to the date of sale. Both dates will be included in the calculation of the Holding Period
TAXATION RATES
Short-Term Capital Gain (STCG):
The sale of immovable property within 24 months (2 years) from its acquisition will attract tax based on the taxpayer's slab rate.
The gain will be incorporated into the taxpayer's total income, and the corresponding tax liability will be determined as per the applicable income tax slab rates.
Long-Term Capital Gain (LTCG):
CASE 1- On the sale of Immovable Property made before 23rd July 2024, a tax rate of 20% with indexation benefit is mandatorily applicable.
CASE 2- For the sale of Immovable Property acquired on or after July 23rd, 2024, the tax rate will be 12.5% without indexation.
CASE 3- On the sale of Immovable Properties made on or after July 23rd, 2024, a tax rate of 12.5% without the indexation benefit or a 20% tax rate with the indexation benefit will be at the option of the taxpayer, if such property has been acquired before July 23rd, 2024.
Let’s discuss these three cases in more detail:
CASE 1
This is a scenario where,
The Immovable Property Is purchased on or before July 23rd, 2024.
The Immovable Property is sold before July 23rd, 2024.
TAXATION: Such a sale will attract a tax rate of 20% with indexation benefits.
CASE 2
This is a scenario where,
Immovable Property purchased after July 23rd, 2024.
Immovable Property sold after July 23rd, 2024.
TAXATION: Such a sale will attract a tax rate of 12.5% without indexation benefit.
CASE 3
This presents an intriguing scenario where,
Property is purchased before July 23rd, 2024.
But, it is sold after July 23rd, 2024.
TAXATION: In such a case it is at the option of the taxpayer to pay:
tax at 20% with indexation benefit, or,
tax at 12.5% without indexation.
Note: this option is available only to resident individuals/HUF. No other entity can claim benefit.
GRANDFATHERING CLAUSE
The notional cost of acquisition will be considered the higher of the following:
Original Cost of acquisition, or,
Fair market value (FMV) as on April 1, 2001.
However, the FMV of land shall not be more than its stamp duty value (SDV) as on April 1, 2001.
This clause is applicable in all three cases discussed above.
EXEMPTION LIMIT
The assessee is allowed an exemption of ₹1,25,000 from the Financial Year (F.Y.) 2024-25 on the long-term capital gain.
The exemption is deductable from the total long-term capital gain.
Annexure 1
In section 112 of the Income-tax Act, in sub-section (1), for clauses (a) and the first proviso, the following shall be substituted and shall be deemed to have been substituted with effect from the 23rd day of July, 2024, namely:―
(a) in the case of an individual or a Hindu undivided family, being a resident,—
(i) the amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been his total income; and
(ii) the amount of income tax calculated on such long-term capital gains,––
(A) at the rate of twenty per cent. for any transfer which takes place before the 23rd day of July, 2024; and
(B) at the rate of twelve and one-half per cent. for any transfer which takes place on or after the 23rd day of July, 2024.
Disclaimer: This article is based on the information available as of January 16, 2025. The content reflects the author's interpretations of provisions of the Income Tax Act, 1961 on long-term capital gain on the sale of a property. While every effort has been made to ensure the accuracy of the information, the author does not guarantee its completeness or reliability. Readers are advised to consult with a professional tax advisor for specific advice tailored to their individual circumstances.