Budget 2017: Breather for gains from property and inherited jewellery

Capital gains on sales of assets such as property and gold will decline after the proposal to shift the base year for calculation of the indexation benefit from 1981 to 2001, as announced by Finance Minister Arun Jaitley.
 
The cost index helps to increase the price of acquisition of an asset by taking inflation into account.
 
To calculate the capital gains at the time of selling any property purchased before 1981, its purchase price is now calculated on the basis of the fair market value of 1981. Calculation at the fair market value of 2001 will increase the cost of acquisition and lower the capital gain.
 
If property or jewellery is held for more than three years, the long-term capital gains tax rate is 20 per cent with indexation. To arrive at the indexed value, the cost of acquisition of the asset is taken into account.
 
The cost of acquisition was assumed to be the fair market value of 1981 for older properties.
 
One reason for changing the base year is perhaps to align the increase in property prices and inflation between 1982 and 2001, say experts. “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 the property,’’ says Amarpal Chadha, tax partner, at consultancy, EY. The change in the base year will affect all kinds of capital assets, including gold and silver jewellery, where taxpayers can derive the indexation benefit.
 
In the case of jewellery, it is possible to determine the price of bullion in the year it was acquired and hence the fair market value could be reasonably estimated.
 
In the case of real estate, this was difficult, and hence the change in the base year will affect property transactions more, says Amit Maheshwari, managing partner, Ashok Maheshwary & Associates LLP.
 
Agreeing that in most cases the seller of the property will benefit as it will bring down his cost of acquisition, it will finally depend on the index values the government notifies, says Rakesh Bhargava, director, Taxmann.
 
Another positive for sellers is that more bonds will be available to invest in and claim exemption on the capital gains tax. At present, very few such notified bonds are available for sellers to invest.