Good News for Property Owners- Government Eases LTCG Tax
Property owners can finally breathe a sigh of relief. The government has proposed a crucial amendment to the Finance Bill 2024, providing significant relief from the burden of long-term capital gains (LTCG) tax that came into effect with the latest changes announced by Finance Minister Nirmala Sitharaman on July 23, 2024, in the Union Budget.
What’s Changing?
The proposed amendment to the Finance Bill (No. 2) 2024 reinstates the indexation benefit for immovable properties bought before July 23, 2024. Under the new rules, the tax would be 12.5% without indexation. However, the higher tax will be ignored if this amount exceeds 20% with indexation. This change is specifically for resident individuals and Hindu Undivided Families (HUFs).
Budget 2024 Announcement
In the Budget 2024, it was announced that land and properties sold after July 23, 2024, would incur a long-term capital gains LTCG tax of 12.5% without indexation, replacing the previous 20% with indexation. This change took effect immediately on July 23, 2024.
What the Amendment Proposes
The amendment states that the extra tax will be disregarded if the new 12.5% tax rate without indexation results in a higher tax liability than the 20% rate with indexation. This relief applies only to properties purchased before July 23, 2024.
Positive Reception from Experts
The amendment has received widespread approval from stakeholders. Experts view it as a positive move, ensuring that indexation benefits apply when taxpayers might otherwise face a higher tax burden due to the new legislation. While the relief is only for properties bought before July 23, the government sees it as a significant step.
Expert Opinions
“This amendment aims to benefit property owners by offering more flexibility in tax calculations, potentially reducing tax liability based on individual circumstances. Importantly, indexation benefits will not apply if a taxpayer incurs a loss. Additionally, if a taxpayer has a profit without indexation but a loss with indexation, their tax payable will be zero. However, taxpayers cannot claim a loss resulting from the indexation benefit. The changes do not fully restore indexation benefits, as immovable properties acquired on or after July 23, 2024, will not be eligible for indexation. This amendment is a positive step from the finance minister, addressing concerns about removing indexation benefits while maintaining tax parity across asset classes,” said Mitesh Jain, Partner, Economic Laws Practice.
Ravi Bishnoi, Partner at Saraf & Partners, commented, “This is a welcome move by the government as the investors would have the option to choose the favorable calculation method as far as tax outgo is concerned. This is mainly beneficial for owners who have held a property for a long period, and the value of the property has appreciated significantly.”
“This amendment will be a relief for taxpayers who were paying the excess tax due to a flat rate of 12.5% with no indexation benefit,” said CA Pratibha Goyal, a Delhi-based chartered accountant.
A Step in the Right Direction
Experts agree that this latest amendment is a positive development. It allows property owners to choose the tax calculation method that results in a lower tax liability for properties purchased before the July 23 budget announcement. This move addresses concerns about removing indexation benefits and strives to maintain tax parity across asset classes, instilling a sense of optimism among property owners.