The Narendra Modi government is set to ease long-term capital gains tax on property sales, as proposed in the Union Budget 2024, according to a Reuters report.
The report states that for long-term capital assets such as land or buildings, transferred by individuals or Hindu undivided families and acquired before July 23, 2024, taxpayers will have the option to calculate their taxes under the new scheme (12.5% without indexation) or the old scheme (20% with indexation), and pay the lower amount.
In her budget speech, Finance Minister Nirmala Sitharaman had announced increases in both long-term and short-term capital gains taxes. The government also proposed removing the indexation benefit for property sales, which allowed property owners to adjust their gains for inflation.
While the short-term capital gains tax has been raised from 15% to 20%, the long-term capital gains tax will be set at a flat rate of 12.5%.
Tax and real estate experts have shared their views on the government’s decision.
Gaurav Karnik, Partner and Real Estate National Leader at EY India, commented, “This move provides much-needed relief to taxpayers, as it prevents situations where they would have to pay higher taxes even when there is no real gain on an indexed basis.”
Vivek Jalan, Partner at Tax Connect Advisory, noted, “Retrospective tax creates uncertainty that can disrupt a taxpayer’s financial position. The benefit of inflation-adjusted indexation on long-term capital gains for real estate was significant, allowing a 20% tax rate after adjusting for the indexed cost of acquisition and improvement.”
He added, “After July 23, 2024, when the Union Budget was announced, indexation was removed even for older properties, and the LTCG rate without indexation was increased from 10% to 12.5%. This will impact property sellers, especially those who bought properties before July 23, 2024, with tax planning in mind. This change could hit the real estate industry hard, but making the change prospective for properties purchased after July 23, 2024, would provide much-needed relief for property owners.”
Niranjan Hiranandani, Chairman of the Hiranandani Group and NAREDCO, stated, “The government’s initiative to allow taxpayers the option to compute taxes either at 12.5% without indexation or at 20% with indexation on real estate transactions is a significant step forward.”
He further added, “This relief applies to the transfer of long-term capital assets, such as land or buildings, acquired before July 23, 2024. By giving taxpayers the choice to select the lower tax burden between the new and old schemes, this amendment is likely to drive investment and boost sales across housing segments.”
