In a significant move, the Centre has amended the long-term capital gains (LTCG) tax regulations for real estate, providing relief to property owners. The amendment, introduced in the Finance Bill tabled in the Lok Sabha on August 6, offers taxpayers the option to choose between the new and old tax regimes for property transactions made before July 23, 2024.
Announced in the Union Budget 2024 by Finance Minister Nirmala Sitharaman, the initial proposal involved the withdrawal of indexation benefits from real estate, reducing the LTCG tax from 20 percent to 12.5 percent. Indexation adjusts the purchase price of an asset for inflation, thus lowering the taxable gains and, subsequently, the tax liability.
Under the new amendment, property owners can now compute their taxes using either the new 12.5 percent rate without indexation or the old 20 percent rate with indexation, allowing them to opt for the more favorable option.
"In the case of transfer of a long-term capital asset, being land or building or both, by an individual or Hindu Undivided Family (HUF), which is acquired before July 23, 2024, the taxpayer can compute his taxes under the new scheme and the old scheme and pay such tax which is lower of the two," said a person familiar with the matter.
The decision to reconsider the removal of indexation benefits follows feedback from various stakeholders, including cadres of the ruling Bharatiya Janata Party, who argued that the original proposal was not in the best interest of the middle class, a core support base for the party. Concerns were also raised that eliminating indexation benefits might increase cash transactions in the real estate sector, potentially fueling black money.
Moneycontrol had earlier reported that the Centre was reevaluating its stance on this issue after the initial announcement by Finance Minister Sitharaman.
The amendment is seen as a move to address these concerns and provide a more balanced approach to real estate taxation, ensuring both compliance and fairness for taxpayers.
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