Govt May Offer Relief on LTCG Tax on Real Estate to Boost Demand
The government may address concerns over the Budget proposal to revise the taxation of long-term capital gains (LTCG) from real estate transactions, offering some relief to boost demand.
Ltcg TaxReal EstateBudget 2024TaxationIndexation BenefitReal Estate MumbaiAug 04, 2024
The changes could be made through an amendment to the Finance Bill 2024 when it is taken up by the Lok Sabha this week. However, the government is likely to stick to the new LTCG tax rate of 12.5%. Indexation is meant to adjust the gains from property sales by factoring in inflation during the period of ownership, and the cost price index is used to compute this.
The move comes after concerns were raised that the proposed LTCG regime could lead to lower demand for real estate units and fewer transactions. However, government officials and independent experts have pointed out that the new regime may not result in higher tax outgo for sellers of property in all cases. If property values appreciate at very high rates, as in many locations in metro cities, then the new regime could be more beneficial to taxpayers.
According to a post by the Income Tax department on July 24, nominal real estate returns are generally in the region of 12-16% per annum, much higher than inflation. The indexation for inflation is in the region of 4-5%, depending on the period of holding. Therefore, substantial tax savings are expected to a vast majority of taxpayers.
However, there is now an appreciation of the fact that nominal real estate returns are not in the range of 12-16% in general and in all places. Factoring in this, some relief may be given. While considering some relief, a fine balance has to be worked out so that the government does not lose substantially and taxpayers also benefit.
Analysts have made several suggestions on how the new regime could be fine-tuned. Some have suggested that taxpayers be given the option to choose between the old regime of 20% LTCG tax rate with indexation benefit or the new regime of 12.5% LTCG rate without indexation.
The government's decision to revisit the LTCG regime is seen as a positive move for the real estate sector, which has been facing a slowdown in recent times. The relief, if announced, is expected to boost demand for real estate units and encourage more transactions.
The Ministry of Finance is responsible for the country's fiscal policy, including taxation. The Income Tax Department is responsible for the administration of taxes in India.
Keywords LTCG tax, real estate, Budget 2024, taxation, indexation benefit
Frequently Asked Questions
What is LTCG tax?
Long-term capital gains (LTCG) tax is a tax levied on the gains made from the sale of assets, such as real estate, that have been held for a long period of time.
What is the current LTCG tax rate?
The current LTCG tax rate is 20%, but the government has proposed to reduce it to 12.5% in the Budget.
What is indexation benefit?
Indexation benefit is a benefit that allows taxpayers to adjust the gains from property sales by factoring in inflation during the period of ownership.
Why is the government reconsidering the LTCG regime?
The government is reconsidering the LTCG regime due to concerns that it could lead to lower demand for real estate units and fewer transactions.
What is the expected impact of the relief on the real estate sector?
The relief, if announced, is expected to boost demand for real estate units and encourage more transactions.
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