Property sellers to pay steep capital gains tax in Gujarat

AHMEDABAD: On Saturday, when the state revenue department doubled the existing government land valuation certificate (LVC) or jantri rates for properties across Gujarat, it also inadvertently led to a steep rise in capital gains tax for new property owners. According to a recently issued circular, the central government has fixed a criteria of 24 months for short-term and long-term capital gains tax.
For properties that are sold to a new buyer within 24 months of ownership, a capital gains tax of 30% will be levied on the profit earned. If the property is owned for more than 24 months and then sold, then a long-term capital gains tax of 20% will be imposed on the profit earned.
A senior revenue department official explained that if the seller is taxed under long-term capital gains tax, s/he can avail of the benefit of indexation.
"There are chances of a property seller losing a substantial portion of his profits in case of long-term capital gains tax. However, indexation offers the seller the option to lower that tax liability," says the senior revenue department official.
How does that work? Indexation helps the seller adjust the cost of acquisition of the property against inflation. When the indexation benefits come into the picture, the cost of purchase increases significantly, in effect lowering the tax outgo, thus increasing one's savings. In case the seller is to pay short-term capital gains tax, then the taxation will differ. The president of the Title Clear Association, Prakash Shah, said, "In 2007 and 2011, when the government had declared the jantri rates, it was decided that the jantri rates will be revised every year. However, the government never honoured this commitment. Now that the jantri rates have been doubled after a decade, it will lead to a large tax burden on the property sellers in the form of capital gains tax. The government is duty-bound to devise a method of revising the rates every year."