In Budget 2024, Nirmala Sitharaman announced some major changes in the taxation policy for homeowners, which received significant backlash from the real estate sector; because of this, the government revamped the finance bill and announced major relief for them. Earlier, the budget introduced a taxation regime that removed indexation benefits from the property and also implied 12.5% on the long-term capital gain tax (LTCG).
However, in a recent announcement, the central government decided to offer homeowners a choice between 12.5% LTCG without indexation and 20% LTCG with indexation for the properties acquired before July 23, 2024.
ANI reported, “Major relief was proposed in the Finance Bill with respect to taxation of immovable property. In the case of the transfer of a long-term capital asset, being land or building or both, by an individual or HuF, which is acquired before the 23rd day of July 2024, the taxpayer can compute his taxes under the new scheme [12.5% without indexation] and old scheme [20% with indexation] and pay such tax which is lower of the two.”
Moreover, various industry leaders like Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co. welcomed the move and stated, “Taxpayers can choose the more beneficial regime and should not be worse off because of change in the law. Concerns around taxation of inflationary gains in respect of immovable property acquired prior to a change in the law have been addressed.”
What Is Indexation And Why It Is Necessary?
Indexation is the method by which the purchase price of the property is adjusted against inflation. This method significantly reduces the tax burden on long-term capital gain tax for property owners. The removal of indexation has sparked worries about a considerable tax burden on taxpayers and the possibility of heightened illicit financial activities in property transactions. Various experts also claimed that if the indexation benefits are not invoked, this might hamper the growth of the sector.
