Indexation Relief: Finance Minister Nirmala Sitharaman addressed Parliament on Wednesday, announcing significant changes to the real estate indexation rules, providing flexibility and potential tax relief for property owners. This move aims to alleviate the tax burden and offer more options for calculating long-term capital gains (LTCG) tax on property sales.
Key Highlights of the Announcement
In her address, Sitharaman emphasized that the amendment allows taxpayers to choose the more beneficial tax calculation method for their situation. “The amendment gives a choice to taxpayers to now calculate and see what works better for them. The current amendment ensures that there will be no additional tax burden on people,” she said, adding, “We heard the people.”
Options for Calculating LTCG Tax
The changes introduce two options for property owners when calculating their long-term capital gains tax:
- 12.5% LTCG Rate Without Indexation: This option allows taxpayers to pay a lower tax rate of 12.5% on the capital gains from the sale of property without adjusting the purchase price for inflation (indexation).
- 20% LTCG Rate With Indexation: This traditional option allows taxpayers to pay a higher tax rate of 20%, but they can adjust the property’s purchase price for inflation using the Cost Inflation Index (CII) provided by the Central Board of Direct Taxes. This adjustment can significantly reduce the taxable capital gains and, consequently, the tax liability.
Industry Reactions
Sanjoo Bhadana, Founder & MD of 4S Developers, praised the decision, stating, “The decision provides flexibility to property owners, allowing them to carefully evaluate their financial situation and select the tax option whenever they plan to sell.”
Mohit Jain, Managing Director of Krisumi Corporation, echoed this sentiment, noting the amendment’s broader impact on the real estate sector. “This change provides much-needed relief for property owners and, consequently, the real estate industry, a significant employment generator in the economy. It also allows for more stability in the real estate market,” he said.
Background and Implementation
During her seventh Budget presentation on July 23, Sitharaman announced changes to long-term capital gains taxation, including the removal of the indexation benefit for capital gains tax on real estate sales. The government proposed an amendment to the LTCG regime, allowing taxpayers to choose between a lower tax rate of 12.5% without indexation or a higher rate of 20% with indexation for properties acquired before July 23, 2024.
Conclusion
The amendment, moved by the Finance Minister, offers flexibility in computing long-term capital gains tax, enabling property owners to strategically plan their sales and select the most favorable tax rate. This development is expected to provide significant relief to property owners and contribute to a more stable and thriving real estate market.
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