The government has moved an amendment allowing long-term capital gains taxes on property purchases made before July 23, 2024, to be calculated under the new 12.5 percent rate without indexation and the old 20 percent rate with indexation and allowing taxpayers to choose the more favourable option.
Moneycontrol had earlier reported that the Centre was reconsidering its decision to remove indexation benefit on sale of property, which was announced by finance minister Nirmala Sitharaman while tabling Union Budget 2024.
"In the case of transfer of a long-term capital asset, being land or building or both, by an individual or HuF (Hindu Undivided Family), which is acquired before the 23rd day of July 2024, the taxpayer can compute his taxes under the new scheme and the old scheme and pay such tax which is lower of the two," a person familiar with the matter said.
This change will be introduced in the Finance Bill, which was tabled in the Lok Sabha on August 6.
In Budget 2024, Finance Minister Nirmala Sitharaman announced the withdrawal of indexation benefits from real estate and lowered the long-term capital gains (LTCG) tax from 20 percent to 12.5 percent. Indexation adjusts the purchase price of an asset for inflation, thereby reducing the gains and, ultimately, the tax liability.
The people said that this move potentially comes as a response to pushback from the cadres of the ruling Bharatiya Janata Party, who have complained that the government was not doing enough to address the grievances of the party's core support base, the middle class.
There were also concerns that removing indexation benefits would increase the cash component in transactions, fuelling black money back into the real estate sector.
The move to remove indexation benefits for the real estate sector irked many with some terming it as an anti-middle class decision.
Following the Budget decision on July 23 to remove indexation benefits, industry experts pointed out that a large number of real estate owners, especially those owning residential property, may see a significant increase in their tax burden once the new regime kicks in.
In fact, real estate stocks declined on July 23 and continued to be in the red during the following day as well.
Earlier, revenue secretary Sanjay Malhotra had defended the proposal to remove indexation benefits from LTCG on real estate citing that other asset classes, including incomes from shares, interest and fixed deposits do not enjoy the same benefit, and the move should be seen as a simplification measure.
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