Representative image.
Credit: iStock Photo
New Delhi: After backlash and criticism from certain quarters over the budget proposal of removing indexation benefit on long-term capital gains (LTCG) on sale of property, the Centre has decided to apply it prospectively and tweak the policy to allow taxpayers to choose between the new and old tax system.
As per the proposed amendments to the Finance Bill 2024, taxpayers will be given an option to choose between a lower tax rate of 12.5 per cent without indexation or a higher rate of 20 per cent with indexation for properties acquired before July 23, 2024, the day when the announcement was made by Finance Minister Nirmala Sitharaman in the budget.
“Now, a resident taxpayer can opt for a tax rate which is more beneficial for properties acquired prior to July 23,” said Hemal Mehta, Partner, Deloitte India. This gives relief to taxpayers who also opt for exemption u/s 54 to compute and invest the long-term capital gains in another residential unit, Mehta said.
In the budget, Sitharaman announced elimination of indexation benefits. The move had raised fears of a significant tax burden for home buyers and sellers and a potential surge in illicit financial activities in the real estate sector.
As per the notice of amendments circulated among the members of the Lok Sabha on Tuesday, the new system of 12.5 per cent tax without indexation will be effective on transactions done July 23, 2024 onwards.
The Finance Minister is likely to move the amendment in the Lok Sabha on Wednesday after her reply to the debate on the Finance Bill 2024.
“This will quell taxpayer concerns around losing indexation benefits as a tradeoff for lower long term capital gains tax rate,” said Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co.
“Taxpayers can choose the more beneficial regime and should not be worse off because of a change in law. Concerns around taxation of inflationary gains in respect of immovable property acquired prior to change in law have been addressed,” Puri added.