Modi government 3.0’s maiden Budget on July 23 led to an unexpected furore among the investor community.
One provision that has irked many is the removal of indexation benefits for the real estate sector.
Real estate stocks declined on the Budget day after the announcement by finance minister Nirmala Sitharaman and continued to be in the red the following day as well.
Explaining the rationale behind the move, Revenue Secretary Sanjay Kumar Malhotra said: “Money does not have any colour. Why don’t they ask for indexation on shares, fixed deposits and so on ... if I am taxing gains from shares then why not from real estate ... if you are selling a house to buy another house then you are exempted."
The Union Budget has also proposed a change in the long-term capital gains tax rate on the sale of property.
The earlier rate was 20 per cent with an indexation benefit. The Budget has now streamlined that rate to 12.5 per cent without indexation benefit.
The short term capital gains tax rate remains unchanged - the gain is added to the income and taxed at the slab rate.
The holding period for determining whether the gain is long or short term remains unchanged at 24 months.
Malhotra said the change impacts the higher income categories. As per a research done by the government, 61 per cent of the long term capital gains tax is from those who have an income of over a crore.
“It doesn’t impact have-nots or lower income groups. The government is not taxing proceeds in case they are invested in another house,” he added.
“For the vast majority there is no increase ... for old properties, benefit has already been given,” he added.
Selling properties dated before 2001 will result in lower long-term capital gains tax. However, there will be no indexation benefit after 2001. Selling properties dating 2001 or after will result in lower LTCG tax without an indexation benefit.
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