Government May Offer Relief to Real Estate Sector on LTCG Tax Regime
The government is considering options to address concerns of stakeholders in the real estate sector, including a possible grandfathering clause, to alleviate the impact of the long-term capital gains (LTCG) tax.
Ltcg TaxReal Estate SectorGrandfathering ClauseIndexation BenefitsPhdcciReal Estate NewsAug 06, 2024
When a new clause or policy is added to a law, certain people may be relieved from complying with the new clause which is called “grandfathering”. The government is considering a grandfathering clause, which would allow transactions completed before July this year to continue benefiting from previous indexation rules.
In the Union Budget, Finance Minister Nirmala Sitharaman announced the withdrawal of indexation benefits from real estate and lowered the LTCG tax from 20 per cent to 12.5 per cent. Indexation adjusts the purchase price of an asset for inflation, thereby reducing the gains and ultimately the tax liability.
Mukul Bagla, Chair of the Direct Tax Committee at PHD Chamber of Commerce and Industry (PHDCCI), said that in the Finance Bill 2024, the Finance Minister has rationalised the provisions of taxation of a capital gain on the real estate sector. However, at the same time, the Bill has denied the benefit of indexation of the cost with respect to all transactions which take place after July 23, 2024.
The PHD Chamber told Revenue Secretary Sanjay Malhotra that the above change will have an adverse impact on the ongoing real estate transactions. “It was proposed to the Revenue Secretary that the old law may be retained or retained at least till March 31, 2025. It was also proposed that an option be given to the SEC that it can choose between the old regime where indexation was allowed and tax was to be paid at 20 per cent, and the new regime wherein there is no indexation loan, but the tax has to be paid by at the rate of 12.5 per cent,” Bagla told IANS.
Such options are already available to the SEC when choosing the taxation for individuals under the new regime and the old regime. “Also, options are available for companies whether to pay tax at the rate of 22 per cent or at a higher rate by claiming deductions, so it was suggested to the Revenue Secretary that an option may also be given in respect of taxation of capital gain, so that the SEC can choose whichever method is more beneficial to it,” Bagla contended.
The Revenue Secretary has said that the LTCG tax regime changes were driven by simplicity, fairness and equity. The picture will only be clear once FM Sitharaman addresses the LTCG issue in her response to the Finance Bill likely on Wednesday, reports said.
The government had introduced the long-term capital gains (LTCG) tax in the Union Budget to simplify the tax regime and reduce the tax burden on taxpayers. However, the real estate sector has been impacted by the withdrawal of indexation benefits.
PHD Chamber of Commerce and Industry (PHDCCI) is a prominent industry association in India that represents the interests of businesses and promotes economic growth.
Frequently Asked Questions
What is the current LTCG tax rate for real estate transactions?
The current LTCG tax rate for real estate transactions is 12.5 per cent.
What is the grandfathering clause and how will it impact real estate transactions?
The grandfathering clause will allow transactions completed before July this year to continue benefiting from previous indexation rules.
Why has the government introduced the LTCG tax regime changes?
The LTCG tax regime changes were driven by simplicity, fairness and equity.
Will the government provide an option for taxpayers to choose between the old and new LTCG regimes?
Yes, the government is considering providing an option for taxpayers to choose between the old and new LTCG regimes.
Who will be impacted by the LTCG tax regime changes?
The real estate sector will be impacted by the LTCG tax regime changes.
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