Short Term Capital Gain on Property

The recent changes, according to the new Union Budget 2024, have brought in essential changes to the taxation of short-term capital gains on property. Short-term capital gains arise when a property is sold within two years from the date of acquisition. These gains are added to the seller’s income and taxed at applicable income tax rates. 

The new budget has made several modifications to how these gains are calculated and taxed, which could significantly impact property transactions and investment strategies. This blog explores the key changes and their implications for taxpayers.

Understanding Short-Term Capital Gains on Property

Before diving into the specifics of the budget changes, it is essential to understand what constitutes short-term capital gains on property:

• Short-term capital gains refer to the profit you earn from selling a property within a short holding period. Currently, it is now less than 24 months as per the latest amendments in the Union Budget 2024.
• These gains are calculated by subtracting the purchase price and any associated costs, such as brokerage and improvement expenses, from the sale price of the property. Unlike long-term capital gains, short-term capital gains have an income tax rate of 20%.

Set-Off and Carry Forward of Losses on Immovable Property Sales

When you incur a loss from the sale of immovable property held for more than 24 months, this loss is classified as a Long-Term Capital Loss (LTCL). Under the income tax rules, you can offset LTCL exclusively against Long-Term Capital Gains (LTCG) on property. 

If any loss remains after this set-off, you can carry it forward for up to 8 years, during which it can be applied only against future LTCG.

In contrast, if you hold the property for 24 months or less and a loss arises from its sale, this is the Short-Term Capital Loss (STCL). STCL offers greater flexibility, allowing you to offset the loss against both Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG). 

Like LTCL, you can carry forward any unabsorbed STCL for up to 8 years, with the option to set it off against STCG and LTCG during this period.

The Bottom Line 

Understanding the new adjustments will require real estate investors and property sellers to reevaluate their strategies and adapt to a more challenging tax environment. Gaining a clear understanding of the new rules associated with short-term capital gains on property and strategically planning in response will be crucial for optimising tax liabilities and making well-informed decisions in the shifting real estate market.