In a move set to alleviate the financial strain on homeowners, the Indian government has proposed a significant amendment to the long-term capital gains (LTCG) tax framework for property sales. Announced in the Union Budget 2024, this amendment offers homeowners a choice between two tax regimes for properties acquired before July 23, 2024.
Under the new scheme, taxpayers can opt to pay a reduced LTCG tax rate of 12.5% without indexation benefits. Alternatively, they can choose the existing rate of 20% with indexation. This dual-option approach allows individuals and Hindu Undivided Families (HUFs) to select the tax rate that results in the lowest financial burden.
The Finance Bill 2024, recently circulated to Lok Sabha members, outlines this new provision, which aims to ease the tax load on those selling long-term capital assets, such as land and buildings, acquired before the specified date. According to industry experts, this change is designed to provide substantial relief to taxpayers who might otherwise face higher taxes despite no real gain after accounting for inflation. Tax and real estate professionals have praised the amendment for its potential to mitigate the negative impact of taxation on property transactions. A partner at Deloitte India commended the initiative, highlighting that the new tax regime allows for a more advantageous tax outcome for property owners. This flexibility is expected to encourage investment and facilitate smoother transactions in the real estate market.
EY India’s Real Estate National Leader echoed these sentiments, noting that the amendment addresses taxpayer concerns regarding the loss of indexation benefits. By offering a choice between the two tax regimes, the government is ensuring that property owners are not disadvantaged by the legislative changes. Shardul Amarchand Mangaldas & Co further supported the amendment, emphasising that it resolves previous concerns about the taxation of inflationary gains. This legislative change provides clarity and stability, reducing the uncertainty associated with retrospective tax adjustments.
Tax Connect Advisory also highlighted the importance of this amendment in reducing the adverse effects of retrospective taxation. The previous system of inflation-adjusted indexation was deemed beneficial, but the new scheme’s simplicity and reduced rate of 12.5% without indexation aim to streamline tax computations and benefit taxpayers. NAREDCO Chairman and Hiranandani Group Head welcomed the government’s decision, noting its potential to stimulate investment and sales in the real estate sector. The option to choose between the new and old tax schemes is expected to drive increased activity in property markets, benefiting both investors and the broader economy.
