Why July 23, 2024, is a game-changer for capital gains in your 2025 ITR filing?

Did you sell a property in FY 2024-25? If yes, you will be impacted by the date July 23, 2024, when filing your income tax return (ITR) in 2025. To know why this date is important and how it can influence the tax that you may have to pay, read this guide.

Why is July 23, 2024 important for taxpayers?

The Finance (No. 2) Bill, 2024 had declared July 23, 2024 as the cut-off date that determines if capital gains can be taxed under old rules or if the new rules apply and if you can avail the indexation or not. The way the long-term capital gains (LTCG) will be calculated and taxed has undergone a change after July 23, 2024.

Old LTCG tax rule vs new LTCG tax rule

The holding period for a property to qualify as long term capital gains (LTCG) is 24 months or two years. The old and the new rule had July 23, 2024 as the divider.

How was the LTCG taxed according to the old rule?

The cut-off date for taxation of the LTCG under the old rule was July 23, 2024. If a property was registered before July 23, 2024 and qualified for LTCG, then the property would either be taxed at 20% with indexation. Thus, the purchase price of the property could be inflated and the gains could be reduced leading to reduced tax liability. The seller also had the option of getting taxed at 12.5% without indexation.

Example

If a home buyer buys a property on April 1, 2005 and sells on August 7, 2024

New capital gain tax rule

According to the new rule, a property that was registered after July 23, 2024 and sold after the LCTG holding period will be taxed at 12.5% with no indexation. The tax rate is the same for both residents and Residents but Not Ordinarily Residents (RONR).

Hypothetically, if a home buyer buys a property on August 1, 2024 and sells it on August 4, 2026, then he will have to pay the LTCG at 12.5% without indexation. (Holding period of LTCG under the new rule is two years)

*This calculation is only for understanding purposes

What is the LTCG tax rate for NRIs?

As per the rule introduced in Budget 2024, non-resident Indians (NRIs) will be taxed at 12.5% on the entire gain irrespective of when the property was purchased. They will not be able to avail the 20% option with indexation.

How is the STCG calculated?

The short term capital gains (STCG) is calculated according to the income tax slabs that is applicable for a person’s income.

Impact of these changes on ITR filing this year

A new section has been added in Form ITR-2 for Assessment Year 2025–26 (AY 2025–26), under which it is mandatory to divide the reporting of capital gains as per the date. So, when filing the ITR, one has to say when the property was registered – before or after July 23, 2024 and accordingly calculations will be done. In case the property was registered before July 23, 2024, both old and new calculations can be done and the one with less tax will be selected.

While filing the ITR, one should go to the e-Filing portal and choose ITR-2 form and go to the ‘Capital Gains’ schedule and register sales separately on the basis of date. While reporting documents including data sale deed, bank statement, PAN, Aadhaar etc. details should be with you. Once the tax calculation is done, submit the ITR and verify using the OTP.

Housing.com POV

Finally, July 23, 2024 reminds every taxpayer that time plays an important role in tax calculation. While initially there was no respite, the government took a mid-way and allowed continuation of both old and new rules. Since the cut-off date for removing indexation benefits has been advanced till July 23, 2024, the real estate industry could absorb the impact. With the new regime to take one more year to be effective -2026, people would be well-aware and do calculations to pay their LTCG tax accordingly.