FM Revises LTCG Indexation Budget Proposal on Real Estate

Ministry of Finance Revises LTCG Indexation Budget Proposal on Real Estate

For properties acquired on or before 23rd July 2024, taxpayers will have the option to choose between the new method (12.5% without indexation) or the old method (20% with indexation). The excess tax payable under the new law over what would have been payable after indexation under the old law will be ignored. This implies that the long-term capital gains tax on the transfer of land and buildings acquired before 23rd July 2024 will be the lower of the tax computed under the new law (12.5% without indexation) and the tax computed under the old law (20% with indexation).

This option is available only for resident individuals and HUFs. For non-resident individuals, companies, partnership firms, LLPs, etc., the benefit of indexation for properties acquired before 23rd July 2024 will not be available.

Finance Minister Proposes Amendments to Finance Bill for Real Estate Capital Gains Tax Calculation

Finance Minister Nirmala Sitharaman has introduced amendments to the Finance Bill, aimed at providing greater flexibility to real estate investors in calculating Long-Term Capital Gains tax for properties acquired on or before July 23, 2023. This move is designed to offer taxpayers more options and potentially reduce their tax burden.

Proposed Amendments Finance Bill for Real Estate Capital Gains Tax Calculation :

Under the revised proposal, taxpayers will have the option to choose between two methods for calculating their Long-Term Capital Gains:

1. New Method:  Long-Term Capital Gains –Flat Rate of 12.5%: Taxpayers can opt to pay a flat 12.5% tax on their long-term capital gains. This method simplifies the calculation and may lower the tax burden for some taxpayers.
2. Old Method: Long-Term Capital Gains @20% with Indexation: This Long-Term Capital Gains method allows taxpayers to adjust the purchase price of their property based on inflation, thus reducing the taxable gain. Taxpayers will then pay a Long-Term Capital Gains 20% tax on the indexed gains. This approach can potentially lower the overall Long-Term Capital Gains tax liability.

Ministry of Finance Revises Long-Term Capital Gains Indexation Budget Proposal  Clarifying more 

• First calculate CG at 12.5%
• Then CG with indexation at 20%
• If 1 exceeds 2 then excess to be ignored

Important Considerations : These options are available only for properties acquired on or before July 23, 2023. The new proposal is currently subject to approval by the Parliament. The benefit of choosing between these methods is limited to resident individuals and HUFs. Non-resident individuals, companies, partnership firms, and LLPs will not have access to the indexation benefit for properties acquired before the specified date.

Action for Taxpayers : Taxpayers are advised to stay informed about the progress of these amendments and consult with their financial advisors or tax consultants to prepare for any potential changes. Understanding these options will help in making informed decisions regarding capital gains tax calculations on real estate properties.