To help homeowners, the Long-Term Capital Gains (LTCG) tax regime in India has been changed significantly. According to Budget 2024-25, the LTCG tax on the sale of real estate has been reduced from 20% to 12.5%, with the removal of indexation benefits. These changes are effective from July 23, 2024.
Key Changes and Options for Taxpayers
For individuals and Hindu Undivided Families (HUFs) who acquired properties before July 23, 2024, the new tax regulations give them two available options. Depending on what is more profitable for them, they can opt for either the new LTCG rate at 12.5% without indexation or go for a previous rate of 20% that comes with indexation benefits as originally provided by it. In fact, this is a great relief to those who might have felt the pinch following the exclusion of indexation benefits.
The indexation benefit enabled taxpayers to adjust an asset’s purchase price for inflation causing lower taxable capital gains; meaning less tax payments. The government through this move intends to address concerns around increased tax liability due to the withdrawal of indexation by giving a choice between two different rates.
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According to the amendments to the Finance Bill, 2024, the decision to give taxpayers an option is expected to lead to “huge tax savings” for most people in real estate. This move by the Income Tax department is expected to reduce long-term capital gains tax burdens and particularly favor those who had bought or inherited properties before 2001, which entitled them to indexation benefits.
Yogesh Kale, executive director at Nangia Andersen India reckoned that these amendments have addressed taxpayers’ concerns. The government has made provisions for properties acquired prior to July 23, 2024 so that taxpayers can choose the most favorable taxation alternative.
Gouri Puri of Shardul Amarchand Mangaldas & Co., also expressed similar sentiments by noting that these changes would assuage fears of losing indexation benefits. With the ability for people paying taxes selecting a more beneficial tax regime they are not going to be disadvantaged in terms of legislative modifications.
Conclusion
The revised LTCG tax structure reflects the government’s efforts on balancing between fiscal policy and tax relief. By allowing homeowners to select the best regime of taxation possible, it addresses fears about likely raise in tax liability and protects taxpayers from the impact of inflationary gains. This modification is expected to provide significant relief to real estate investors and maintain confidence in the property market.
