Finance Minister Nirmala Sitharaman addressed the Parliament on Wednesday, confirming the relaxation of real estate indexation rules. This announcement follows earlier changes to the long-term capital gains (LTCG) tax, including the removal of indexation benefits for real estate sales in Budget 2024. The new amendment gives taxpayers the option to calculate their long-term capital gains tax in a way that works best for them, ensuring no additional tax burden.
The changes offer property owners two options for calculating their long-term capital gains tax. The first option allows taxpayers to pay a lower tax rate of 12.5% on the capital gains from the sale of property without adjusting the purchase price for inflation, also known as indexation. The second option allows taxpayers to pay a higher tax rate of 20%, but they can adjust the property's purchase price for inflation using the Cost Inflation Index (CII) provided by the Central Board of Direct Taxes. This adjustment can significantly reduce the taxable capital gains and, consequently, the tax liability.
Sanjoo Bhadana, Founder & MD of 4S Developers, remarked that the decision provides flexibility to property owners, allowing them to carefully evaluate their financial situation and select the tax option that works best for them whenever they plan to sell. This flexibility is especially important given the fluctuating nature of the real estate market and the personal financial situations of property owners.
While tabling her seventh Budget on July 23, Sitharaman announced these changes to long-term capital gains taxation, including the removal of the indexation benefit for capital gains tax on real estate sales. The government proposed an amendment to the LTCG regime on Tuesday, allowing taxpayers to choose between a lower tax rate of 12.5% without indexation or a higher rate of 20% with indexation for properties acquired before July 23, 2024.
Mohit Jain, Managing Director of Krisumi Corporation, commented on the amendment, stating that it offers flexibility in computing long-term capital gains (LTCG) tax, allowing taxpayers to choose between a lower rate of 12.5% without indexation or a higher 20% rate with indexation for properties acquired before July 23, 2024. This enables property owners to strategically plan their sales, paying the lower of the two tax rates. This change provides much-needed relief for property owners and, consequently, the real estate industry, a significant employment generator in the economy. It also allows for more stability in the real estate market.
The introduction of these two options aims to give taxpayers the ability to minimize their tax liability based on their specific financial circumstances, promoting a more flexible and taxpayer-friendly approach to real estate transactions. The amendment is seen as a positive move by the government, as it addresses the concerns of property owners and provides them with options to manage their tax liabilities more effectively. The flexibility offered by the new rules is expected to encourage more transactions in the real estate market, contributing to the overall growth and stability of the sector.
Finance Minister Sitharaman emphasized that the government had listened to the concerns of the people and made these changes to ensure there would be no additional tax burden on property owners. The move is expected to provide significant relief to those looking to sell their properties, as they can now choose the tax option that results in the lowest liability. This approach not only benefits individual taxpayers but also has the potential to boost the real estate market by making it more attractive for property transactions.
The changes to the long-term capital gains tax rules are a significant step towards creating a more favorable tax environment for property owners. By offering a choice between two different tax rates, the government has provided taxpayers with the tools they need to manage their financial affairs more effectively. This move is likely to be welcomed by property owners and real estate professionals alike, as it provides much-needed clarity and flexibility in dealing with capital gains tax.
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