Firm Gov't stance on LTCG tweaks for real estate

Published Date: 24/07/2024

Government sources have clarified that there will be no reconsideration on changes made to Long Term capital gains tax (LTCG) in the Union Budget, despite concerns over removal of Indexation benefit on property sales.

"The Indian government has reaffirmed its stance on the Long Term Capital Gains (LTCG) tax tweaks introduced in the Union Budget 2024-25, despite concerns raised by various stakeholders regarding the removal of Indexation benefit on property sales for tax calculation. According to government sources, there will be no rethink on the LTCG provisions made in the budget as it is beneficial for taxpayers.

The LTCG simplification across asset classes was one of the major announcements made by Union Finance Minister Nirmala Sitharaman in the Union Budget 2024-25. However, the withdrawal of indexation has led to concerns that it will lead to massive tax liability for taxpayers and will also lead to black money generation in property transactions.

To address these concerns, the Central Board of Direct Taxes issued a clarificatory note on social media, clarifying that the proposed new tax rate without indexation is beneficial in most cases. The budget 2024-25 has proposed a flat capital gain tax of 12.5 percent on capital appreciation on selling property instead of a 20 percent tax on capital appreciation with indexation benefits.

The income tax department explained that the nominal real estate returns are generally in the region of 12-16 percent per annum, much higher than inflation. The indexation for inflation is in the region of 4-5 percent, depending on the period of holding. Therefore, substantial tax savings are expected for a vast majority of taxpayers.

The income tax department also explained that there will be tax savings under the new proposal on properties sold in different time durations. For properties held for five years, the new regime will be beneficial if the property price has appreciated 1.7 times or more. The IT department added that even if the property is held for 10 years and it has appreciated 2.4 times or more, the new tax regime will be beneficial for the taxpayer.

If a property is bought in 2009-10 and the value has increased to 4.9 times or more, the new tax proposal will be beneficial for taxpayers. However, the income tax department admits that if the per annum return on property price is less than 9-11 percent, the earlier tax rate of 20 percent with indexation will be beneficial.

The income tax department emphasizes that simplification of any tax structure has the benefits of ease of compliance in computing taxes, filing, and maintaining records. The new proposal has also removed the differential rates of taxes for various asset classes.

  Information 

The Union Budget 2024-25 introduced significant changes to the Long Term Capital Gains tax regime, aiming to simplify the tax structure and promote ease of compliance. The Central Board of Direct Taxes is responsible for administering the Income-tax Act and is the apex body for direct taxes in India.

The Union Finance Minister, Nirmala Sitharaman, presented the Union Budget 2024-25, which aimed to promote economic growth and simplify the tax regime. The Central Board of Direct Taxes is a statutory body responsible for administering the Income-tax Act."

FAQs:

"Q: What is the proposed Long Term Capital Gains tax rate on property sales?

A: The proposed Long Term Capital Gains tax rate on property sales is 12.5 percent without indexation.

Q: Why has the government removed the Indexation benefit on property sales?

A: The government has removed the Indexation benefit on property sales to simplify the tax structure and promote ease of compliance.

Q: Will the new tax regime be beneficial for taxpayers?

A: According to the income tax department, the new tax regime will be beneficial for a vast majority of taxpayers, as the nominal real estate returns are generally higher than inflation.

Q: How will the new tax regime affect taxpayers who have held properties for a longer duration?

A: The new tax regime will be beneficial for taxpayers who have held properties for a longer duration, such as 5-10 years, if the property price has appreciated significantly.

Q: What are the benefits of simplification of the tax structure?

A: The benefits of simplification of the tax structure include ease of compliance in computing taxes, filing, and maintaining records."

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