The Ministry of Finance is currently deliberating over the implementation of changes to the Long Term Capital Gains (LTCG) tax regime, specifically the potential elimination of indexation benefits for properties, gold, and other unlisted assets. These revisions, initially announced on July 23, 2024, may be applied prospectively rather than retroactively.
The Finance Bill 2024-25, which is anticipated to be debated in Parliament soon, could incorporate adjustments to the indexation provisions. According to insider sources, the Ministry is considering applying these changes from the fiscal year 2025-26 onwards. This prospective application would provide property owners and investors adequate time to adjust their plans in response to the new tax framework.
Currently, the LTCG provisions allow for indexation, enabling taxpayers to adjust the acquisition cost of assets for inflation before calculating capital gains. This mechanism reduces taxable gains and, consequently, tax liability. The government publishes the Cost Inflation Index (CII) to facilitate this adjustment. However, the proposed changes aim to simplify the tax calculation process by potentially removing this benefit. One of the proposals under review includes giving property sellers the option to choose between a 20% tax rate with indexation benefits or a 12.5% rate without indexation, as stipulated under section 112 of the Income Tax Act. Despite the potential advantages of this choice, some officials believe it could complicate the tax process, with a preference for a more streamlined approach.
The Ministry has not indicated any plans to reverse the decision on indexation but is considering adjustments to ease the transition for stakeholders. This move follows a notable increase in LTCG tax revenues, with the government raising ₹2.78 lakh crore over the past five years. For the assessment year 2023-24, the Centre collected ₹98,682 crore in LTCG taxes, up from ₹86,075 crore in the previous year. As the discussions continue, property owners and investors should stay informed and consult with financial advisors to navigate the upcoming changes effectively.
