How the Union Budget 2017 Capital Gains Tax Proposals Impact you?

  • The government made several tax proposals aimed at the housing and infrastructure sector. But apart from vowing pukka houses for the masses, an important announcement too was made, which has the potential to change the way taxes are levied on buying and selling houses.
  • If assets are held for long-term one can adjust the purchase price in accordance with inflation to reduce the tax applicable. This period of long-term differs from one asset to another. For debt-mutual funds it is 36 months and for unlisted shares it is 24 months, while for listed shares it is 12 months.
  • So, far immovable property should have been held for 36 months to be considered long-term. The Union Budget 2017-18 proposes to shrink this period to 24 months as well, in line with unlisted shares.
  • This brings cheer for many who are in a situation where they need to liquidate their house property. So, to adjust the purchase price of house factoring in inflation – also called indexation – the buyer would have to wait a year less, starting April 1, 2018. The long-term capital gains tax on assets is 10% without indexation and 20% with indexation.
  • Even though the tax rate is higher for non-indexed gains, one tends to reduce tax outgo as inflation is considered.
  • In addition to this the base year for indexation has been changed to 2001 (currently CII is 426) from 1981 (currently 100 as its base). This too will reduce the tax outgo on long-term assets.
  • However, there is a bad news for those holding more than one house on home loan. A limitation has been introduced on loss from house property that can be off against income from another via new clause (3A) under Section 71 restricting the loss to be set off under “Income from house property” to Rs 2 lakh for any assessment year starting April 1, 2018.
  • “The unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years in accordance with the existing provisions of the Act,” say the Budget proposals.
  • So, those who have one home purchased using home loan, there will be no change. But those who had a second house purchased using home loan, could claim interest deduction without any limit under by setting it as loss against “Income from house property” when any one was considered let out.
  • This move would impact those second home owners.
  • Vet your tax liability and await the approval of Finance Bill, 2017 to know whether you would lose or stand gains.

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Financial Management