The real estate industry is relieved that the Center has decided to reconsider its decision to eliminate the indexation advantages on real estate transactions in response to strong opposition from a number of real estate industry players.
To give individuals the option of choosing between a 12.5% long-term capital gains tax rate without indexation and a 20% rate with indexation for property bought before July 23, 2024, the federal government has introduced an amendment to the Finance Bill, 2024.
Taxpayers can use this decision to determine which course of action is best for them when selling a building or piece of land they purchased before July 23, 202. The new method allows the taxpayer to compute taxes at a rate of 12.5% without indexation, while the old scheme allowed for a rate of 20% with indexation.
Indexation lowers taxable gains by adjusting asset acquisition prices in response to inflation. The elimination of this advantage, though, may make sellers’ tax obligations higher. The LTCG tax rate was lowered from 20% to 12.5%, although there is no indexation advantage.
In her Union Budget 2024 address last month, Finance Minister Nirmala Sitharaman declared that the LTCG tax will be reduced from 20% to 12.5% without the indexation advantage. Subsequently, the government made it clear that the indexation benefit would only apply to houses purchased before to 2001.
It is a positive step that the modification pertaining to the tax on long-term assets being real estate. A resident taxpayer can now choose a tax rate that will benefit homes purchased before July 23, 2023, more. Hemal Mehta, a partner at Deloitte India, stated, “This provides relief to taxpayers who also choose to compute and invest the long-term capital gain in another residential unit.”
This will allay taxpayer worries about giving up indexation benefits in exchange for a longer-term capital gains tax rate that is lower. The most advantageous regime may be selected by taxpayers, and a change in the legislation shouldn’t make their situation worse. Gouri Puri, Partner at Shardul Amarchand Mangaldas & Co., stated, “Concerns regarding the taxation of inflationary gains in respect of immovable property acquired prior to the change in the law have been addressed.”
