Government to Restore Indexation Benefit for Property, Bringing Relief to Homeowners
The government is set to introduce flexibility in computing capital gains tax on immovable property, offering relief to taxpayers and the real estate industry.
Property TaxCapital Gains TaxIndexation BenefitReal Estate IndustryTax ReliefReal EstateAug 06, 2024
Finance Minister Nirmala Sitharaman is expected to propose amendments to the provisions of the Bill on Wednesday in Parliament. The amendment will allow taxpayers to choose the lower tax burden between the new and old schemes.
By enabling taxpayers to choose the lower tax burden between the new and old schemes, the amendment is poised to drive investment and enhance sales across housing segments. The plan is to allow those selling assets bought before 23 July 2024 to compute their capital gains tax obligation in either the earlier or the new tax schemes, whichever suits them. This restores the indexation benefit available on sale of property.
In the case of transfer of a long-term capital asset such as land or building acquired prior to 23 July, 2024, the taxpayer can compute his tax either at 12.5% without indexation—the new scheme—or at 20% with indexation, the old scheme, and pay such tax that is lower of the two.
This is a roll back of the withdrawal of the indexation benefit, explained Amit Singhania, managing partner at Areete Law Offices. If the tax payable under the new regime (without indexation benefit) at the rate of 12.5% exceeds the tax payable under the old regime (with indexation benefit) at the rate of 20% then, such excess shall be ignored.
Indexation benefit refers to adjusting the purchase price of an asset for inflation while computing the capital gains tax. This helps reduce the tax burden on the seller. The indexed purchase price is calculated using a cost inflation index (CII).
Niranjan Hiranandani, chairman of Hiranandani Group and NAREDCO, applauded the move, calling it a significant step forward. By enabling taxpayers to choose the lower tax burden between the new and old schemes, the amendment is poised to drive investment and enhance sales across housing segments.
The government had proposed to amend the capital gains tax structure in the budget presented in Parliament on 23 July. However, the removal of the indexation benefit led to calls from investors for its restoration, saying the lower tax rate proposed in the bill without indexation may not benefit the sellers in all circumstances.
The finance bill had initially proposed to allow neutralisation of the foreign exchange fluctuations for foreign investors while computing their capital gains. However, the amendments to the finance bill propose to take away this benefit along with the increase in tax rate from 10% to 12.5%.
The Centre is proposing as many as 45 amendments to the finance bill. The changes come after it held extensive consultations with the industry after the budget announcements.
Simplifying and rationalising the tax regime is a priority for the government. The finance minister had in her budget speech announced a comprehensive review of the Income Tax Act, which is expected to be completed in six months.
Frequently Asked Questions
What is indexation benefit?
Indexation benefit refers to adjusting the purchase price of an asset for inflation while computing the capital gains tax.
What is the impact of the amendment on taxpayers?
The amendment will allow taxpayers to choose the lower tax burden between the new and old schemes, which is expected to drive investment and enhance sales across housing segments.
What is the new tax scheme proposed by the government?
The new tax scheme proposed by the government is a tax rate of 12.5% without indexation, which is lower than the old scheme of 20% with indexation.
Why did the government roll back the withdrawal of indexation benefit?
The government rolled back the withdrawal of indexation benefit after investors called for its restoration, saying the lower tax rate proposed in the bill without indexation may not benefit the sellers in all circumstances.
What is the expected completion date of the comprehensive review of the Income Tax Act?
The comprehensive review of the Income Tax Act is expected to be completed in six months.
Related News Articles
Why Rexas Finance (RXS) at $0.20 Is the Altcoin to Watch in 2025 and Where to Buy It
Rexas Finance (RXS) is leading the way in real-world asset tokenization, making investments in real estate, luxury items, and fine art more accessible. As the crypto market cycles, RXS, valued at $0.20, presents a significant upside potential for early in
1:10 Stock Split Declared by RDB Realty: Record Date to Be Announced Soon; Is It a Good Buy?
RDB Realty, after acquiring the real estate division of RDB Industries Limited, has declared a 1:10 stock split. The company has not yet announced the record date, but investors are already looking for insights into whether this move is a good investment
MahaRERA's Conciliation Forums: Resolving 1,749 Complains and Expanding Reach
Established to provide prompt resolutions to homebuyers, the Maharashtra Real Estate Regulatory Authority's (MahaRERA) Conciliation Forums have successfully addressed 1,749 grievances from homebuyers across the state.
New Residential Project Launched by Provident Housing in Chennai
Provident Housing has unveiled a new residential project featuring 676 units spread over 5.35 acres on the bustling Kelambakkam-Vandalur Road in Chennai. This exciting development promises to bring modern living to a vibrant and growing area.
Why Delhi-NCR and Mumbai Are Seeing a Surge in Housing Prices
Housing prices in Delhi-NCR and Mumbai have seen a significant surge over the past five years, driven by high demand and infrastructural developments.
Macrotech Developers' Net Debt Surges 14% to Rs 4920 Cr in Q2
Macrotech Developers, a prominent real estate developer, has reported a 14% increase in net debt to Rs 4,920 crore in the second quarter of the fiscal year 2024-25. This rise is attributed to increased investments in land acquisition and construction in s