Indexation benefits restored for properties bought before July 23! After backlash, govt makes THIS revision – Details

In a relief to the real estate sector, the Centre has decided to revisit its decision to scrap the indexation benefits on property transactions after widespread backlash from various stakeholders of the realty space.

The central government has moved an amendment to the Finance Bill, 2024, to allow people choose either a 12.5% long-term capital gains tax rate without indexation or a 20% rate with indexation for property acquired before July 23, 2024.

With this decision, taxpayers can compute which option is better for them on sale of land or building acquired before July 23, 2024. The taxpayer can compute taxes under the new scheme at 12.5% without indexation and under the old scheme at 20% with indexation.

Indexation adjusts asset purchase prices based on inflation, reducing taxable gains. However, the removal of this benefit may increase the tax burden for sellers. The new LTCG tax rate is 12.5%, reduced from 20% but without indexation benefit.

Also read: What should you do when you get an income tax notice after ITR filing?

Finance Minister Nirmala Sitharaman in her Union budget 2024 speech last month announced that LTCG tax slashed to 12.5% from 20% without the indexation benefit. However, the government later clarified that the indexation benefit would be applicable on properties acquired before 2001.

“The amendment related to tax on long term asset being immovable properties is a welcome move. Now a resident tax payer can opt for tax rate which is more beneficial for properties acquired prior to 23 July 2023. This gives relief to taxpayer who also opt for exemption u/s 54 to compute and invest the long term capital gain in another residential unit,” said Hemal Mehta, Partner, Deloitte India.

“This will quell taxpayer concerns around losing indexation benefits as a tradeoff for lower long term capital gains tax rate. Taxpayers can choose the more beneficial regime and should not be worse off because of change in law. Concerns around taxation of inflationary gains in respect of immovable property acquired prior to change in law have been addressed,” said Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co.