Homeowners get flexible LTCG tax

The government sought to address a significant concern stemming from the 2024-25 Budget announcement by introducing flexibility in the computation of long-term capital gains (LTCG) tax on unlisted assets, including properties.

The 2024-25 Budget outlines an overhaul of the capital gains tax regime, including lowering the LTCG rate from 20 per cent to 12.5 per cent and eliminating indexation benefits for homes purchased on or after April 1, 2001.

This proposal has sparked concerns regarding real estate transactions, as indexation has historically allowed homeowners to account for inflation in tax calculations.

Under the originally proposed rule, homeowners would not have been able to adjust for inflation, potentially leading to substantial taxes, especially on older properties with lower selling prices.

Indexation is a method used to adjust the purchase price of an asset, such as property, for inflation over time, reducing the taxable capital gains upon sale. By removing indexation, the government aims to simplify the tax calculation process.

This change has led to higher tax liabilities for property owners, as the original purchase price is now used for calculating capital gains without adjustment for inflation.

For any assets, such as land or buildings, sold before July 23, 2024, taxpayers can choose between the new and old regimes, opting for whichever results in a lower tax liability.

Under the new LTCG regime, the tax rate is set at 12.5 per cent without the benefit of indexation. Conversely, the old regime imposes a 20 per cent tax but allows for indexation benefits.

This flexibility effectively serves as a grandfathering provision for all property transactions completed before the Budget’s presentation in Parliament on July 23. This adjustment is among the key amendments proposed in the Finance Bill, 2024, regarding the taxation of immovable properties.

With this proposed change to the original Finance Bill, the government has clearly heeded the legitimate concerns of many taxpayers. Without indexation, the tax outgo could have been higher for those selling older properties.