Government gives option to calculate LTCG tax on properties, pay lower tax
The government has proposed significant relief for individuals who bought houses before July 23, 2024, by giving them the option to choose between two tax rates for long-term capital gains (LTCG) tax. Under the amendments to the Finance Bill, individuals or Hindu Undivided Families (HUF) can compute their taxes under the new scheme of 12.5% without indexation or the old scheme of 20% with indexation and pay the lower tax of the two.
New tax rates in effect from July 23
The Budget 2024-25 had proposed to lower the LTCG tax rate from 20% to 12.5%, but removed the indexation benefits. These new rates came into effect from July 23, 2024. Previously, indexation benefits allowed taxpayers to compute gains on the sale of capital assets after adjusting for inflation. However, tax experts had pointed out that the changes would increase the burden of LTCG tax.
Tax relief for majority of taxpayers
The amendments to the Finance Bill, circulated to the Lok Sabha members on Tuesday, were aimed at providing substantial tax savings for the majority of taxpayers in the real estate sector. The Income Tax department, after the Budget presentation, stated that taxpayers can expect substantial tax savings due to the reduction in the LTCG tax rate. The government has also retained the indexation benefit for taxpayers on properties bought or inherited before 2001.
Option to choose more beneficial tax regime
According to Yogesh Kale, Executive Director, Nangia Andersen India, the amendments proposed to the new capital gain tax regime introduced in Budget 2024 address the concerns raised by taxpayers. Properties acquired prior to July 23, 2024, can be grandfathered, allowing taxpayers to choose to offer the capital gain tax either at 12.5% without indexation or 20% with indexation, whichever is more beneficial.
Addressing concerns around tax on inflationary gains
Gouri Puri, Partner at Shardul Amarchand Mangaldas & Co., added that the new system will alleviate concerns among taxpayers about losing indexation benefits in exchange for a lower long-term capital gains tax rate. Taxpayers can now choose the more beneficial tax regime and should not be negatively affected by changes in the law. These amendments address concerns around the taxation of inflationary gains in respect to immovable property acquired prior to changes in the law.
In conclusion, the government’s move to allow individuals and HUFs who bought houses before July 23, 2024, to choose between different tax rates for LTCG tax aims to provide relief and savings for taxpayers. The amendments to the Finance Bill provide the option to calculate taxes under the new scheme without indexation or the old scheme with indexation, allowing taxpayers to pay the lower of the two taxes. This move addresses concerns raised by taxpayers and ensures that the taxation of inflationary gains is fair and advantageous.
