The Union finance ministry might be inching closer to tweaking the newly announced provision in the FY25 budget to withdraw indexation benefits from long-term capital gains (LTCG) tax on the sale of real estate property, gold and unlisted assets. The withdrawal raised quite a stir among experts and property holders whose tax outgo was supposed to go up significantly following withdrawal of the indexation benefit.
“Some modalities are being worked out in some form in the proposed regime with the intent to provide relief to homeowners,” the Business Standard quoted an official while reporting the development. However, the report indicated that no significant change is expected in this regard.
Shift in effective date?
One of the possibilities being discussed in the ministry is to shift the date to the next financial year and not make it effective from the day the Budget was tabled – July 23.
While the government removed indexation benefit, it also brought down the LTCG rate from 20% to 12.5%.
What is indexation?
Indexation is a method to factor in the impact of inflation on the price of purchasing an asset and the time when it is being sold. It is adjusted for CII or cost of inflation index.
However, the computation involves detailed calculation which is difficult for the common property owner to follow.
A simple structure
After the budget while interacting with the media, finance secretary T V Somanathan said that the government wanted to create a simple tax structure while removing the indexation benefit. Increasing tax revenue was not a trigger for the government, he asserted.
However, the controversy would not show any sign of dying down and the finance ministry, on July 26, the Income Tax Department issued a detailed calculation illustrating how the removal of indexation benefit would actually reduce the LTCG burden on the seller of a real estate property purchased years ago.
Calculation of Income Tax Department
The calculation showed if someone spent Rs 5 lakh to purchase a piece of real estate property in 1990 and sold it for Rs 1 crore now, the tax liability without the indexation benefit would be Rs 11.25 lakh.
However, with indexation benefit, the tax outgo would be Rs 12.74 lakh.
The removal of indexation benefit from LTCG on real estate property raised a storm after the Budget. Reports indicate that the government is contemplating a tweak to provide some relief to the owners of property. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
