Lok Sabha Passes Finance Bill 2024 With Key Amendments To Capital Gains Tax On Real Estate

Nirmala Sitharaman, in her 2024-25 Budget, initially proposed reducing the long-term capital gains tax on real estate from 20 per cent to 12.5 per cent, albeit without the indexation benefit

The Lok Sabha on Wednesday approved the Finance Bill 2024, following significant amendments to the recently introduced capital gains tax on real estate. The government has now offered taxpayers the choice to either switch to a new lower tax rate or continue with the existing regime that includes the indexation benefit.

Finance Minister Nirmala Sitharaman, in her 2024-25 Budget, initially proposed reducing the long-term capital gains tax on real estate from 20 per cent to 12.5 per cent, albeit without the indexation benefit. Indexation allows taxpayers to adjust the cost price of a property for inflation, effectively reducing taxable gains.

Responding to criticism that the new provision would increase the tax burden and deter real estate investments, Sitharaman introduced an amendment. This amendment reinstates the indexation benefit for properties purchased before July 23, 2024. Taxpayers can now opt to pay the lower 12.5 per cent tax without indexation or continue with the 20 per cent tax with indexation.

The Lok Sabha approved the Finance Bill with 45 official amendments through a voice vote. The Bill will now move to the Rajya Sabha for discussion. According to the Constitution, the Rajya Sabha cannot reject a money bill but can return it with recommendations. If the Rajya Sabha does not return the Bill within 14 days, it is deemed approved.

Sitharaman said that the Budget for FY25 aims to foster investment and support the middle class. She highlighted the increase in the tax exemption limit on long-term capital gains in listed equities and bonds from Rs 1 lakh to Rs 1.25 lakh as a significant benefit for middle-class investors in stock markets.

The Finance Minister also noted the Modi government's efforts to simplify the taxation regime and ease compliance without significantly raising taxes. Reductions in customs duties on various goods are expected to promote trade, investment, and employment.

Addressing calls to remove GST on health and life insurance premiums, Sitharaman explained that 75 per cent of GST revenue is allocated to states. Before the implementation of the 18 per cent GST on health insurance premiums, states independently levied taxes on these premiums. With the rollout of GST, these taxes were consolidated under the GST framework.