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Tag: LTCG

Views of Fractional or Co-ownership Player on LTCG

Mr Naresh Nagaraj, Founder and CFO, YOURS, a platform for Fractional Ownership of Luxury Second Homes

In fractional or co-ownership, the capital asset under consideration is the shares of Special Purpose Vehicle (SPV) that holds the house property. For the owner, this is treated as an investment in unlisted shares of the SPV.

The recent amendments announced in the Union Budget by the Hon’ble Finance Minister introduces significant changes regarding the period of holding and the tax rates of capital assets. For fractional ownership, this amendment has no impact since the holding period for unlisted shares remains unchanged at 24 months. Due to this proposed amendment, the gains on all long-term capital assets will be taxed at 12.5%. Previously, unlisted shares were taxed at 20% after providing for indexation; now, they will be taxed at 12.5% without indexation.

For fractional ownership, if the shares are held for less than 24 months, the tax treatment remains the same, with no impact from the amendment. However, while the period of holding for fractional ownership remains unaffected, the removal of indexation benefits and the revised tax rates will have a significant impact on the taxation of long-term capital gains. However, it is important to note that the reduction in tax rate is beneficial, when the holding period of unlisted shares is between 5-7 years. Therefore, for fractional owners, reduction in tax rate is a boon and not a deterrent. It also encourages ease of transfer of shares without complications arising out of applying indexation.