Introduction
The taxation of property has been a key area of focus under both the Income Tax Act, 1961, and the newly proposed Income Tax Act, 2025. The new bill introduces several changes that impact how capital gains are calculated and taxed when a property is sold. Understanding these rules is crucial for property owners, investors, and tax professionals.
What Constitutes a Taxable Property Sale?
Whenever a property is bought or sold, tax implications arise. Under the New Income Tax Bill, 2025, the sale of property continues to be subject to taxation, similar to the previous law. The tax liability depends on various factors such as:
- The duration for which the property was held before being sold.
- The classification of the property as a capital asset.
- The tax rate applicable based on short-term or long-term capital gains classification.
Proper documentation and tax compliance are essential to avoid penalties and ensure that the right amount of tax is paid.
Classification of Capital Assets
Under the new tax law, assets are broadly classified as Capital Assets except for:
- Stock in trade (taxed as business income).
- Agricultural land in India.
- Personal effects (such as furniture, clothing, and personal-use vehicles) except for specified assets like jewelry, paintings, sculptures, and artifacts.
Immovable property is considered a Capital Asset, and when sold, any gains from the sale are taxable under the head Income from Capital Gains.
Short-Term vs. Long-Term Capital Gains on Property
The classification of capital gains is based on the holding period of the asset:
- Short-Term Capital Gain (STCG): If a property is sold within 24 months of acquisition, the profit is treated as short-term capital gain.
- Long-Term Capital Gain (LTCG): If a property is sold after 24 months, the profit qualifies as long-term capital gain.
Example Calculation:
If a property was purchased in 2021 for ₹25,00,000, with an additional ₹2,50,000 spent on registration and brokerage, the total acquisition cost would be ₹27,50,000.
- Sale Price in 2025: ₹35,00,000
- Net Consideration (after brokerage): ₹34,00,000
- Capital Gain: ₹34,00,000 – ₹27,50,000 = ₹6,50,000
If the property is sold before 24 months, this gain is taxed as short-term capital gain. If sold after 24 months, it is taxed as long-term capital gain.
Taxability of Capital Gains Under New Income Tax Bill, 2025
Short-Term Capital Gains Tax (STCG)
Short-term capital gains are taxed as per the income tax slab rates applicable to the seller. Unlike long-term gains, there is no special concessional rate.
Long-Term Capital Gains Tax (LTCG)
For long-term capital gains, the New Income Tax Bill, 2025, provides two taxation options:
- 12.5% Tax Rate without Indexation
- 20% Tax Rate with Indexation (for properties acquired before July 23, 2024)—whichever is more beneficial for the taxpayer.
Indexation and Cost Inflation Index (CII)
Indexation is a key benefit available for long-term capital gains taxation, which adjusts the purchase price for inflation.
Formula for Indexed Cost of Acquisition:
Example of Indexation:
- Property Purchase Year: 2010-11
- Purchase Price: ₹10,00,000
- Sale Year: 2024-25
- Sale Price: ₹25,00,000
- CII in 2010-11: 167
- CII in 2024-25: 363
Indexed Cost Calculation:
Long-Term Capital Gain Calculation:
If the taxpayer opts for indexation, the taxable capital gain reduces, lowering the tax liability.
Conclusion
The New Income Tax Bill, 2025, retains the core principles of capital gains taxation while introducing new tax rates and indexation benefits. Property owners must carefully evaluate the tax implications before selling a property to optimize tax liability. Proper planning, documentation, and compliance with the updated tax rules can help minimize tax burdens and maximize post-tax profits.
