Compute tax either at 12.5% without indexation or 20% with indexation on realty transactions: Govt proposes amendment
Aug 6, 2024
Synopsis
The proposed amendment offers taxpayers a choice between a 12.5% long-term capital gains tax rate without indexation or a 20% rate with indexation for properties acquired before July 23, 2024. This change followed Budget 2024's proposal to remove indexation benefits. Despite concerns, the Income Tax department described this development as advantageous.
In a big relief to taxpayers, Finance Minister Nirmala Sitharaman will move an amendment in the Finance Bill to let taxpayers select either 12.5% LTCG rate without indexation or 20% rate with indexation for property acquired before July 23, 2024.
The move of Centre will likely mean that transfer of a long-term capital asset, being land or building or both, by an individual or HuF, which is acquired before the 23rd day of July 2024, the taxpayer can compute his taxes under the new scheme [12.5% without indexation] and old scheme [20% with indexation] and pay such tax which is lower of the two.
The development comes after the government faced backlash by the real estate sector. The stakeholders cautioned the government that the proposal to remove indexation benefits for long-term capital gains in real estate will hurt the growth of the sector.
In Budget 2024 presented by Finance Minister Nirmala Sitharaman, the government proposed eliminating indexation benefits for homeowners.
Indexation rule in Budget 2024:
The proposed change means that homeowners who profit from selling their property will now have to pay tax on the entire profit amount, rather than on the inflation-adjusted profit. Indexation is used to adjust the purchase price of an investment to reflect the effect of inflation on it.
Previously, indexation benefits allowed homeowners to increase the property's cost basis to account for inflation, thereby reducing the net profit and the associated tax liability.
The elimination of indexation has raised fears of a significant tax burden for taxpayers and the potential for increased illicit financial activities in property deals. However, the Income Tax department has refuted such claims and called the move 'advantageous'.
Earlier, ET had reported that higher tax rate with indexation or a lower rate of 12.5% without indexation, as well as some form of grandfathering for ancestral properties are proposed. The suggestions are being examined at the finance ministry and will be discussed with the Prime Minister’s Office, people familiar with the matter told ET.
The finance ministry held one round of discussions on the concerns raised in several quarters over the move, including a possible rise in black money transactions.
[The Economic Times]
