Indexation loss penalises long-term asset holders

Indexation loss penalises long-term asset holders

Even as the long-term capital gains tax applicable to homes and lands has been reduced to 12.5 percent, a pinch that will be felt harder by those who have old properties, will be the snatching away of the indexation benefit.

The Union Budget proposals, have removed the indexation benefit available under Section 48 for all long-term capital gains income.

Paras Savla, partner at KPB & Associates, points out that “The loss due to indexation will hurt higher than the reduction in taxes of 7.5 percent, especially for those holding old properties.”

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This is because for old properties would lose out on the marked differential in cost inflation index, he adds.

The changes announced under the Union Budget on the capital gains would be effective starting July 23, 2024. This means that even if an advance has been paid prior to the Union Budget 2024 announcement, but the agreement hasn’t yet been signed, then the loss on indexation would be applicable.

This will make sure that people have no reaction time and will have to pay the higher tax outgo due to foregoing the indexation benefit.

“When the asset is held for a longer period, an asset owner takes the risk of the future changes in taxation. But he will be penalised now for staying long. Earlier you were compensated as the CII for older assets was proving beneficial,” says Savla.

Apart from other capital assets, the change in the taxation structure for buyback shares would be responsible for a higher tax outgo due to the indexation benefit being taken away.

Even those investing in debentures and Units of Bonds would lose out on the indexation benefit as per the newly introduced Section 50 AA on listed and unlisted bonds.

This is a developing story.

See here: Government to allow tax collected at source to be set off against TDS on salary: Budget 2024