Government Revises LTCG Indexation on Real Estate: What You Need to Know
The government's recent amendment to the Finance Bill, 2024, has sparked confusion and concern around profit made on property sales and real estate transactions.
Ltcg IndexationReal EstateTaxationFinance Bill 2024Union Budget 2024Real EstateAug 07, 2024
This move has sparked confusion and concern among real estate investors and sellers, who are now unsure about the profit made on property sales and transactions. The indexation benefit, which allowed sellers to adjust for the impact of inflation when calculating capital gains, has been scrapped for properties bought in and after 2001.
The inflation impact was calculated based on the Cost Inflation Index published by the Central Board of Direct Taxes on an ongoing basis. The base of the index was set as April 1, 2001, with the value at 100. Properties under construction have grown by nearly seven times in value on average, while the overall real estate sector has grown nearly four times since 2009, according to ANAROCK data.
The amendment is part of the Union budget 2024, which was presented by Finance Minister Nirmala Sitharaman last month. The budget proposed a reduced tax on long-term capital gains from 20% to 12.5%. However, the removal of indexation benefit for real estate transactions has raised concerns among stakeholders.
Sitharaman will introduce the Finance Bill for fiscal 2024–25 in the Lok Sabha on Wednesday, seeking its consideration and passage. This bill is essential for implementing the budget proposals, which require approval from both houses of Parliament.
About ANAROCK ANAROCK is a leading real estate consulting firm that provides comprehensive services to its clients, including research and consulting, investment banking, and asset management.
About the Cost Inflation Index The Cost Inflation Index is a measure of inflation published by the Central Board of Direct Taxes (CBDT) to calculate the long-term capital gains tax. The index is used to adjust the cost of acquisition of an asset to reflect the impact of inflation.
About the Finance Bill, 2024 The Finance Bill, 2024, is a bill presented by the Finance Minister of India to implement the budget proposals for the fiscal year 2024-25. The bill requires approval from both houses of Parliament to become a law.
Frequently Asked Questions
What is the new tax rate on long-term capital gains for real estate transactions?
The new tax rate on long-term capital gains for real estate transactions is 12.5% without indexation or 20% with indexation.
What is the impact of scrapping indexation benefit for real estate transactions?
The scrapping of indexation benefit for real estate transactions means that sellers will not be able to adjust for the impact of inflation when calculating capital gains, resulting in a higher tax liability.
How is the Cost Inflation Index used for calculating long-term capital gains tax?
The Cost Inflation Index is used to adjust the cost of acquisition of an asset to reflect the impact of inflation, which helps in calculating the long-term capital gains tax.
What is the significance of the Finance Bill, 2024, for real estate investors and sellers?
The Finance Bill, 2024, is essential for implementing the budget proposals, including the reduced tax on long-term capital gains and the removal of indexation benefit for real estate transactions.
Who is affected by the changes in LTCG indexation for real estate transactions?
The changes in LTCG indexation for real estate transactions affect real estate investors and sellers who have acquired properties in and after 2001.
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