Taxpayers can get option to chose between two tax options to take indexation benefits & reduce its tax liability.
The central government on Tuesday proposed major relief for individuals who bought houses before July 23, 2024, by giving them the option to choose between two tax rates for long-term capital gains (LTCG) tax. The central government may amend the Finance Bill 2024 that offers taxpayers a choice for calculating taxes on real estate transactions.
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The Budget 2024-25 had proposed to lower the LTCG from 20 per cent to 12.5 percent but removed the indexation benefits. The new rates have come into effect from July 23, 2024. The indexation benefit allowed taxpayers to compute gains arising out of the sale of capital assets after adjusting for inflation.
Who Will Get Benefit Under LTCG Tax Amendment?
Individuals and Hindu Undivided Families (HUFs) who bought residential property before July 23 can choose between two tax options: 12.5 per cent without indexation (new tax regime) or 20 per cent with indexation (old regime). These changes will provide major relief to taxpayers who had to pay more long-term capital gains tax (LTCG) on land or buildings as per earlier changes in government Budget 2024.
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Tax experts had said that the proposed changes in the Budget would raise the LTCG tax burden.
After the Budget presentation, the Income Tax department said that ‘substantial tax savings’ are expected for a vast majority of taxpayers due to a reduction in the long-term capital gains tax (LTCG) rate in the real estate sector.
As per the changes brought in the 2024-25 Budget, the government has retained the indexation benefit for taxpayers on properties bought or inherited before 2001.
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Benefits Of Indexation
Indexation is used to adjust the purchase price of an investment to reflect the effect of inflation on it. A higher purchase price means lesser profits, which helps you to reduce your taxes while buying property.
Indexation helps you to lower your long-term capital gains & thereby reduces your taxable income. The rate of inflation used for indexation can be obtained from the government’s Cost Inflation Index (CII). The Central Government determines the values in the index and is updated on the income tax department’s website. You can view the Cost Inflation Index from 1981 onwards.
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What Will Not Change?
The amendments brought back the indexation benefit only for immovable property and not other unlisted assets like gold. For unlisted securities or shares, the capital gains would be taxed at 10 per cent for transfers before July 23 and 12.5 per cent on or after July 23.
