New Option Introduced for Individuals to Choose Tax Rates for Long-Term Capital Gains
The government of India has recently introduced a new option that allows individuals who purchased properties before July 23, 2024, to choose between two tax rates for long-term capital gains (LTCG) tax. This move aims to provide individuals with greater flexibility in managing their tax liabilities.
LTCG Tax Rate Reduced but Indexation Benefit Removed
As part of the Budget 2024-25, the LTCG tax rate was lowered from 20% to 12.5%. However, at the same time, the indexation benefit, which allowed taxpayers to adjust capital gains for inflation, was eliminated. This change, which came into effect on July 23, 2024, aimed to simplify the tax system and streamline the process of calculating LTCG tax.
Taxpayers Given the Option to Choose Lower Tax Amount
According to the amendments to the Finance Bill, individuals or Hindu Undivided Families (HUFs) who acquired properties before July 23, 2024, can now calculate their taxes under either the new rate of 12.5% without indexation or the old rate of 20% with indexation. They can choose the lower tax amount between the two options, providing them with some flexibility in terms of managing their tax liabilities.
Given the lower LTCG tax rate introduced in the Budget, the Income Tax department expects many taxpayers to see substantial savings. This positive development enables individuals to benefit from the tax rate reduction and potentially reduce their overall tax burden.
Retained Indexation Benefit for Properties Bought or Inherited Before 2001
In addition to the aforementioned changes, the 2024-25 Budget retains the indexation benefit for properties purchased or inherited before 2001. This means that taxpayers who acquired properties before this date can still take advantage of the indexation benefit, despite the removal of this provision for properties acquired after July 23, 2024.
Opinions from Finance Professionals
Tax experts have provided their insights on the new option offered to taxpayers. Yogesh Kale, Executive Director at Nangia Andersen India, expressed that the proposed amendments address some taxpayer concerns. He mentioned that despite the removal of indexation benefits, individuals who acquired properties before July 23, 2024, are now equipped with the opportunity to be taxed at either the rate of 12.5% without indexation or 20% with indexation, depending on what favors them more.
Gouri Puri, a Partner at Shardul Amarchand Mangaldas & Co., added that this provision will alleviate the concerns of taxpayers who were worried about losing the indexation benefits in exchange for a lower LTCG tax rate. By providing the choice between two tax rates, individuals can optimize their tax liabilities based on their specific circumstances.
This move by the government to introduce a new option for property owners is expected to bring about a positive impact on taxpayers. It provides individuals with more control over their LTCG tax liabilities and allows for flexibility in choosing the tax rate that best suits their financial situations. Experts in the field have expressed optimism about these changes, offering relief to many property owners who have been eagerly awaiting such reforms in the country’s tax system.
