Mumbai, February 1, 2017

This will bring down capital gains especially in case of property transactions

 Capital gains on sale of assets like property or gold may come down following the proposal to shift the base year for calculation indexation from 1981 to 2001, as announced by the Finance Minister in the Budget 2017-18.

This means that any property that was purchased before 1980 was now calculated according to the Fair Market Value (FMV) of 1980 at the time of selling in order to calculate capital gains. But now it will be calculated at the FMV of 2001. “This is closer to the current market prices and will help the seller get better market value,’’ Amarpal Chadha Tax Partner, People Advisory Services, EY.

If the property is held for more than three years, the long term capital gains (LTCG) tax applicable is 20 per cent with indexation. In order to calculate the indexation the value of acquisition is taken into account and this was assumed to be the FMV of 1981 for older properties.

Now since the base year would be 2001, the cost of acquisition will be higher, as property prices went up between the period 1981 to 2001.

"Capital gains will come down because the cost of acquisition of property will go up and hence the tax burden will be lower while selling property," says Chadha.

The change in the base year will also impact jewellery like gold or silver, where too you can get indexation benefit. But in case of jewellery it is possible to get the price of the year when it was acquired. In case of real estate it was difficult, and hence the change in the base year will impact property transactions more, says Amit Maheshwari, Managing Partner, Ashok Maheshwary & Associates.

Agreeing that in most cases most cases the seller of property will benefit as it will bring down the cost of acquisition, it will finally depend on the indexation values the government will notify, says Rakesh Bhargava, director, Taxmann.

[The Business Standard]