Big Relief For Property Owners As Govt Likely To Amend Indexation Proposal On Real Estate

The government will amend the Finance Bill to give taxpayers the option of using the 12.5% LTCG rate without indexation or the 20% rate with indexation for property acquired before July 2024.

The move would allow taxpayers to pay the lower tax amounts of the two options.

In a big relief to taxpayers, Union Finance Minister Nirmala Sitharaman will move an amendment in the Finance Bill to allow taxpayers to choose either the long-term capital gains (LTCG) rate without indexation or 20% rate with indexation for property acquired before July 23, 2024. 

The move would allow taxpayers to pay the lower tax amounts of the two options. It comes following concerns from various stakeholders over the budget proposal to remove the indexation benefit on long-term gains.

In the Union Budget 2024, Finance Minister Nirmala Sitharaman had announced revisions to the capital gains tax rates and adjustments to the indexation benefits for various assets, including real estate. Sitharaman also reduced the long-term capital gains (LTCG) tax rate on the sale of property from 20 per cent to 12.5 per cent.

The stakeholders had warned the government that the move to remove indexation benefits for long-term capital gains in real estate will hurt the growth of the sector. Tax experts had said that the proposed changes in the Budget would raise the LTCG tax burden.

As per the changes brought in the 2024-25 Budget, the government has retained the indexation benefit for taxpayers on properties bought or inherited before 2001. The Centre's decision mean that the transfer of a long-term capital asset by an individual acquired before July this year, the taxpayer can calculate his taxes under the new scheme, which is 12.5 per cent without indexation; or the old scheme, which is 20 per cent with indexation and pay the lower sum of the two.  

Indexation is the process of adjusting the original purchase price of an asset or investment in order to neutralise the impact of inflation on it. 

In simpler terms, it involves revising the cost of the acquisition of an asset based on the inflation over the period for which it was held.