Govt allows flexibility in LTCG tax calculation in relief for homeowners | Economy & Policy News
The government on Tuesday sought to address a significant concern stemming from the 2024-25 Budget announcement by introducing flexibility in the computation of long-term capital gains (LTCG) tax on unlisted assets, including properties.
For any assets, such as land or buildings, sold before July 23, taxpayers can choose between the new and old regimes, opting for whichever results in a lower tax liability.
Under the new LTCG regime, the tax rate is set at 12.5 per cent without the benefit of indexation. Conversely, the old regime imposes a 20 per cent tax but allows for indexation benefits. This flexibility effectively serves as a grandfathering provision for all property transactions completed before the Budget’s presentation in Parliament on July 23.
About 25 additional amendments have been proposed in the Bill. Of these 19 pertain to direct taxes and the remaining to indirect tax laws including customs.
Finance Minister Nirmala Sitharaman is expected to present this amendment, along with others, in the Lok Sabha on Wednesday following her response to the debate on the Finance Bill 2024.
Commenting on the tweak, Sudhir Kapadia, a senior advisor at EY, said: “With this proposed change to the original Finance Bill, the government has clearly heeded the legitimate concerns of many taxpayers. Without indexation, the tax outgo could have been higher for those selling older properties.” He further said what is now proposed gives “the best of both worlds”.
The 2024-25 Budget outlines an overhaul of the capital gains tax regime, including lowering the LTCG rate from 20 per cent to 12.5 per cent and eliminating indexation benefits for homes purchased on or after April 1, 2001.
This proposal has sparked concerns regarding real estate transactions, as indexation has historically allowed homeowners to account for inflation in tax calculations.
Under the originally proposed rule, homeowners would not have been able to adjust for inflation, potentially leading to substantial taxes, especially on older properties with lower selling prices.
Indexation is a method used to adjust the purchase price of an asset, such as property, for inflation over time, reducing the taxable capital gains upon sale. By removing indexation, the government aims to simplify the tax calculation process.
However, this change has led to higher tax liabilities for property owners, as the original purchase price is now used for calculating capital gains without adjustment for inflation.
First Published: Aug 06 2024 | 9:32 PM IST
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