The government has proposed an amendment that allows long-term capital gains taxes on property purchases made before July 23, 2024, to be calculated either under the new 12.5% rate without indexation or the old 20 percent rate with indexation. Taxpayers can choose the option that is more favorable to them.
The Centre was re-evaluating its decision to eliminate the indexation benefit on property sales, a move announced by Finance Minister Nirmala Sitharaman during the presentation of the Union Budget 2024.
One of the official said,"For the transfer of a long-term capital asset, such as land or a building, by an individual or Hindu Undivided Family (HUF) where the asset was acquired before July 23, 2024, the taxpayer can calculate their taxes under both the new and old tax schemes and pay the lower amount."
This change will be included in the Finance Bill, which was presented in the Lok Sabha on August 6.
In Budget 2024, Finance Minister Nirmala Sitharaman announced the removal of indexation benefits for real estate and a reduction in long-term capital gains (LTCG) tax from 20% to 12.5%. Indexation, which adjusts an asset's purchase price for inflation, thereby lowers the gains and, consequently, the tax liability.
It is suggested that this move may be a response to feedback from the Bharatiya Janata Party's base, which has criticized the government for not adequately addressing the concerns of the middle class, a key supporter of the party.
Additionally, there are worries that eliminating indexation benefits could lead to a rise in cash transactions, potentially reintroducing black money into the real estate sector.
The decision to remove indexation benefits for the real estate sector has upset many, with some calling it an anti-middle class move.
After the Budget decision on July 23 to eliminate indexation benefits, industry experts noted that many real estate owners, particularly those with residential properties, could face a substantial increase in their tax liabilities once the new regime is implemented.
As a result, real estate stocks fell on July 23 and remained in decline the following day.
Previously, Revenue Secretary Sanjay Malhotra defended the proposal to remove indexation benefits from long-term capital gains on real estate by pointing out that other asset classes, such as shares, interest, and fixed deposits, do not receive similar benefits. He suggested that the change should be viewed as a measure to simplify the tax system.
Finance Minister Nirmala Sitharaman announced in the Union Budget on July 23 the removal of indexation benefits for real estate and a reduction in the long-term capital gains (LTCG) tax rate from 20% to 12.5%. Indexation adjusts an asset's purchase price for inflation, which reduces both the gains and the resulting tax liability.
Following the Budget decision on July 23 to remove indexation benefits for real estate, experts warned that many property owners, particularly those with residential properties, could face a substantial increase in their tax liabilities under the new regime. Real estate stocks fell on July 23 and continued to decline the next day.
Revenue Secretary Sanjay Malhotra defended the removal of indexation benefits by arguing that other asset classes, such as shares, interest, and fixed deposits, do not receive similar benefits, positioning the change as a simplification measure.
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