Indexation benefit of LTCG tax in real estate only marginally covered inflation costs, says CBDT chief

The new tax of 12.5 percent without indexation will be more beneficial for taxpayers.

The indexation benefit available on long-term capital gains (LTCG) in real estate deals only marginally took care of the inflation seen in property prices, which have jumped five times in the last 10 years, Central Board of Direct Taxes (CBDT) Chairman Ravi Agarwal said.

The government's analysis shows the new 12.5 percent rate in LTCG tax will be more beneficial for the taxpayers, he added after Finance Minister Nirmala Sitharaman tabled the Union Budget for 2024-25 on July 23.

While the Budget reduced the LTCG tax on real estate deals from 20 percent to 12.5 percent, the removal of the indexation benefit against inflation sparked a concern that it will add to the burden on the middle class.

“Though the indexation benefit on LTCG in real estate has been removed, the government’s analysis shows that in the last 10 years while the cost of property has increased 5 times, the indexation benefit was only marginally taking care of the inflation. As against that the capital gains tax was 20 percent,” Agarwal told Moneycontrol in an interview.

“On comparing the data of the last 10 years, if a person is holding a property and the property appreciation is 4-5 times, the new tax of 12.5 percent without indexation will be beneficial. Keeping in view the increase in property rates, the new tax announced in the Budget will be beneficial for taxpayers,” he said.

The removal of indexation benefits will not be applicable to properties held before 2001, and they will continue to get indexation benefits.

The Finance Minister, in a bid to rationalise the capital gains tax regime, changed the LTCG tax rate to 12.5 percent across all financial and non-financial assets.