The government on Tuesday proposed significant relief for individuals who purchased houses before July 23, 2024, by allowing them to choose between two tax rates for long-term capital gains (LTCG) tax.
The Budget for 2024-25 had initially proposed lowering the LTCG tax rate from 20% to 12.5% but removed the indexation benefits, which adjust gains for inflation. The new rates took effect on July 23, 2024.
Tax experts had warned that the Budget’s changes would increase the LTCG tax burden due to the removal of indexation benefits.
However, amendments to the Finance Bill, 2024, circulated to Lok Sabha members on Tuesday, offer individuals or Hindu Undivided Families (HuFs) who bought houses before July 23, 2024, the option to compute their taxes under the new scheme (12.5% without indexation) or the old scheme (20% with indexation) and pay the lower of the two amounts.
Following the Budget presentation, the Income Tax Department announced that substantial tax savings are expected for many taxpayers due to the reduced LTCG rate in the real estate sector.
The Budget 2024-25 retained indexation benefits for properties bought or inherited before 2001. Yogesh Kale, Executive Director at Nangia Andersen India, noted that the proposed amendments to the new capital gains tax regime address taxpayer concerns to some extent. “While the abolition of indexation benefit continues, properties acquired before July 23, 2024, are proposed to be grandfathered, allowing taxpayers to choose between 12.5% without indexation or 20% with indexation, whichever is more beneficial,” Kale explained.
Gouri Puri, Partner at Shardul Amarchand Mangaldas & Co., stated that this move would address taxpayer concerns about losing indexation benefits in exchange for a lower LTCG rate. “Taxpayers can choose the more beneficial regime and should not be worse off because of changes in the law. Concerns about the taxation of inflationary gains on immovable property acquired before the law change have been addressed,” Puri added.
Comments