Centre revises LTCG indexation proposal for real estate, offers two tax rate options

In a major relief for property owners, the Centre has proposed flexibility for long-term capital gains (LTCG) tax calculations, allowing taxpayers to choose from two tax rates.

Finance Minister Nirmala Sitharaman had announced in her Budget speech last month that the LTCG would be lowered from 20% to 12.5%. However, the indexation benefits were removed.

The new rates came into effect from July 23, 2024. The indexation benefit allowed taxpayers to compute gains from the sale of capital assets after adjusting for inflation.

Tax experts believed that the proposed changes in the Budget 2024 would raise the LTCG tax burden.

What changes now?

As per the amendments to Finance Bill, 2024, circulated to the Lok Sabha members on Tuesday, August 6, individuals or HuF (Hindu Undivided Family) who bought houses before July 23, 2024, can calculate their taxes under the new scheme with 12.5% tax rate without indexation and old scheme with 20% rate with indexation and pay such tax which is lower of the two.

After the Budget presentation, the Income Tax (I-T) department said that 'substantial tax savings' are expected for most taxpayers due to a reduction in the real estate sector's LTCG tax rate.

As per the changes brought in the 2024-25 Budget, the government has retained the indexation benefit for taxpayers on properties bought or inherited before 2001.

Over the past five years, the government has collected ₹2.78 lakh crore from LTCG taxes. The Centre raised ₹98,682 crore from LTCG in the assessment year 2023-24, up 14.6% from ₹86,075 crore collected in the previous assessment year.

Yogesh Kale, Executive Director of Nangia Andersen India, said that the government is trying to appease the taxpayers by amending the new capital gain tax regime.

Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co., said the proposed changes would quell taxpayers' concerns regarding LTCG tax.

"Taxpayers can choose the more beneficial regime and should not be worse off because of change in law. Concerns around taxation of inflationary gains in respect of immovable property acquired prior to a change in the law have been addressed," Puri added.