Govt Makes Amends In LTCG Regime For Real Estate: Report

The Indian government has introduced an amendment to the Finance Bill, 2024, providing relief for the real estate sector under the long-term capital gains (LTCG) tax regime. According to a report by CNBC TV18, taxpayers will now have the option to choose between a lower 12.5% LTCG tax rate without indexation or a higher 20% rate with indexation for properties acquired before July 23, 2024.

The amendment allows taxpayers to calculate their tax liability under both the new and old schemes and opt for the lower tax amount. This move is intended to address concerns within the real estate market, particularly regarding the scrapping of indexation benefits announced in the Union Budget 2024.

Previously, the indexation allowed property sellers to adjust capital gains for inflation, calculated using the Cost Inflation Index (CII) published by the Central Board of Direct Taxes. This adjustment helped reduce the taxable gain on property transactions, particularly for properties purchased after April 1, 2001. However, the recent budget proposal to reduce the LTCG tax rate to 12.5% also eliminated this indexation benefit, sparking confusion and concern among taxpayers about the impact on real estate transactions.

The Finance Bill, which includes this amendment, will be introduced by Finance Minister Nirmala Sitharaman in the Lok Sabha for consideration and passage. This legislation is crucial for implementing the budget proposals, which require approval from both houses of Parliament.

Earlier the government had claimed that the taxation of capital gains was rationalised and simplified across five broad parameters: simplified holding periods, uniform rates for the majority of assets, elimination of indexation with a reduced rate, parity between residents and non-residents, and no change in rollover benefits.

The new provisions for taxation of capital gains which came into force on July 23, 2024, and will apply to any transfer made on or after that date and according the government the holding period for assets has been simplified, reducing the previous three holding periods to just two: one year for listed securities and two years for all other assets. This change will benefit holders of listed units of business trusts, as the holding period is reduced from 36 months to 12 months. For gold and unlisted securities (other than unlisted shares), the holding period is reduced from 36 months to 24 months. However, the holding period for immovable property and unlisted shares remains unchanged at 24 months.