Real estate LTCG transactions sans indexation practically beneficial for taxpayers: CBDT Chairman
The Chairman of the Central Board of Direct Taxes (CBDT), Ravi Agrawal, has stated that the removal of indexation benefits from real estate transactions will prove to be beneficial for taxpayers. In an interview following the post-budget announcement by Finance Minister Nirmala Sitharaman, Agrawal explained that the measure will provide taxpayers with less tax obligation.
The Budget for 2024-25 has reduced tax rates on long-term capital gains (LTCG) earned from the sale of house properties. However, the benefit of indexation available for taxpayers has been removed. The LTCG has been reduced from 20% with indexation benefit to 12.5% without indexation for the real estate sector.
Indexation is a mechanism used to adjust the purchase price of an investment, such as a house, to reflect the effect of inflation over the holding period. Despite concerns raised by some over the impact on the real estate market, Agrawal emphasized that the new scheme would be practically beneficial in most cases. He highlighted demands from various quarters and taxpayers to simplify the capital gains regime.
Agrawal provided an example to illustrate the practical benefits of the new regime. He mentioned that property rates and gains have significantly increased over the last ten years. Comparing indexation with the new regime, he explained that the benefit of indexation would only be 1.5 times over the ten-year period. In contrast, if the property rate has gone up by three times in the same period, the new tax regime would be beneficial.
The CBDT Chairman emphasized that property rates have increased by more than three times in most cases, particularly in tier one and tier two cities. The new regime aims to simplify the process for taxpayers and the tax department.
Agrawal also clarified that the indexation benefit would continue to be available for properties bought or inherited before 2001, under the grandfathering clause. However, the LTCG indexation proposal has been given immediate effect.
In another budget development related to the securities transaction tax (STT) on futures and options (F&O) trade, the chairman addressed the rational behind the increase in STT. The move comes in response to the exponential increase in F&O transactions and the aim of normalizing the system by generating additional revenue.
The censorship English dailies also drew attention to the rising interest of retail investors in derivative trading. The Economic Survey highlighted concerns over speculative trade, stating that it has no place in a developing country. The survey also suggested that the sharp increase in retail investor participation is driven by gambling instincts.
In conclusion, the removal of indexation benefits from real estate transactions is expected to be practically beneficial for taxpayers according to CBDT Chairman Ravi Agrawal. The new regime aims to simplify the capital gains process and reduce tax obligations, making it advantageous for most taxpayers. Additionally, the increase in STT on F&O trade is an attempt to normalize the system and address concerns over speculative trading by retail investors.
