New Delhi: In a major relief for taxpayers, the Centre on Tuesday moved amendments to the Finance Bill providing the option of choosing great relief to choose between the Long Term Capital Gains (LTCG) rate of 12.5 per cent without indexation benefit and 20 per cent LTCG on property purchased before July 23, 2024, with indexation benefit.
This step follows strong feedback form the public regarding the removal of indexation benefits on property purchases since the year 2000 introduced in Budget 2024 by finance minister Nirmala Sitharaman. Stakeholders had cautioned the government that the proposal to remove indexation benefit on LTCG tax in real estate would hurt the growth of the sector.
The introduction of a choice between LTCG rates is akin to the introduction of a new tax regime under the Incoem TAx Act. Now, taxpayers can choose the more favourable tax rate while filing LTCG on property sales. The new rule applies to individuals and Hindu Undivided Family (HUF) units only on houses purchased before July 23, 2024,
What is indexation benefit?
Indexation benefit is the reduction in tax proportionate to the rise in inflation, based on data published by the government on an annual basis. This is called the cost inflation index. Here’s how it works:
Suppose you have purchased a property in 1970
You will receive the benefit of getting the correct price of 2001,
Under the new proposal, you will not be able to take advantage of the indexation from 2001 to 2024.
To be sure, several taxpayers also faced issues related to indexation tax benefits under the 20 per cent rate. The new LTCG rate in property helps to simplify tax filing.
Suppose you bought a house worth Rs 50 lakh in 2001, which you sell for Rs 2 crore during 2024-25.
In the new system, you do not get the benefit of indexation and your total profit is Rs 1.5 crore.
Under the new system, you will have to pay a tax of 12.5 per cent or Rs 18.75 lakh
If you choose the old LTCG system, you will get the benefit of indexation.
If we add indexation, the value of your house in 2024-25 comes out to be around Rs 1.80 crore, on a sale of Rs 2 crore
Your LTCG will be Rs 20 lakh. You will have to pay 20 per cent tax on this, equalling Rs 14.75 lakh.
Taxpayers rejoice! The Centre has moved an amendment to the Finance Bill allowing the option to pay taxes under 2 separate LTCG regimes, with and without indexation benefits. Here’s how it works. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
