The Central Government unveiled a major relief measure for homeowners, who purchased properties before July 23, 2024. The new proposal offers these individuals a choice between two tax regimes for long-term capital gains (LTCG) tax.
Previously, the Budget 2024-25 had outlined a reduction in the LTCG tax rate from 20 per cent to 12.5 per cent, eliminating the indexation benefit. This adjustment took effect on July 23. The indexation benefit, which allowed taxpayers to adjust the capital gains for inflation, was a significant factor in determining tax liabilities.
Experts had expressed concerns that these changes might increase the tax burden on LTCG.
However, according to the latest amendments to the Finance Bill, 2024, which were presented to Lok Sabha members on Tuesday, individuals and Hindu Undivided Families (HuF) who acquired properties before the specified date can now select between the new tax rate of 12.5 per cent without indexation and the old rate of 20 per cent with indexation, paying the lower of the two amounts.
Following the Budget presentation, the Income Tax Department indicated that the revised LTCG tax rate is expected to bring ‘substantial tax savings’ for many taxpayers, particularly in the real estate sector.
Under the revised Budget provisions, the government has preserved the indexation benefit for properties bought or inherited before 2001.
Nangia Andersen India Executive Director Yogesh Kale commented that the amendments to the capital gains tax regime introduced in the 2024 Budget reflect the Finance Minister’s attempt to address taxpayers’ concerns to some extent.
“The continuation of indexation benefits for properties acquired before July 23, 2024, provides taxpayers with the option to choose between a 12.5 per cent rate without indexation or a 20 per cent rate with indexation, based on whichever is more advantageous,” Kale explained.
Gouri Puri, Partner at Shardul Amarchand Mangaldas & Co, noted that this adjustment addresses taxpayer worries about losing indexation benefits while benefitting from a lower LTCG tax rate.
“This provision allows taxpayers to select the most beneficial tax regime and ensures that they do not suffer adverse effects due to the change in law,” Puri added.
