Indexation Benefit for Property Owners: Understanding the Fine Print
The reintroduced indexation benefit for long-term capital gains tax on real estate has limitations. Here's what you need to know.
Ltcg TaxReal EstateIndexation BenefitTax On PropertyNrisReal EstateAug 07, 2024
Property owners will have the option to pick between indexation with 20% tax and forgoing indexation for the lower 12.5% tax rate. For properties bought after 23 July, the 12.5% tax rate without indexation is applicable.
According to tax experts, only resident individuals and Hindu Undivided Families (HUF) are eligible for this option. The Notice of Amendment specifies that companies and LLPs are excluded from this relaxation.
A closer reading suggests that non-resident Indians (NRIs), too, don’t get the benefit of this partial rollback of indexation benefit, said Ajay R. Vaswani, founder, Aras and Company Chartered Accountants.
The Notice of Amendments specifically states that the revised provision is to be inserted after line 37 of page 39 in the Finance Bill, 2024, right after the clause for resident individuals and HUFs. The clauses for companies and non-residents have been excluded from this amendment, explained Mayank Mohanka, founder of TaxAaram India and partner at S.M. Mohanka & Associates.
Tax experts warn that these limitations could significantly impact taxpayers, particularly NRIs who often face challenges in selling properties in India. Many NRIs end up selling their properties at a lower price because it’s difficult to find buyers who can pay the full amount in cash, Vaswani noted.
Additionally, NRIs face complexities in obtaining lower TDS certificates and 15CB certificates to remit sales proceeds abroad.
The Union Budget for 2024-25 had proposed to lower the LTCG from 20% to 12.5% but removed indexation benefits. The new rates came into effect 23 July 2024. The indexation benefit allowed taxpayers to compute gains arising out of the sale of capital assets after adjusting for inflation.
Indexation benefit was retained for properties bought or inherited before 2001.
Losses cannot be offset. The option of indexation applies only to gains, not losses. If a property is sold at a loss, owners cannot offset or carry forward this loss. However, they won't have to pay the 12.5% tax on properties sold at a loss after adjusting for inflation.
Frequently Asked Questions
Who is eligible for the indexation benefit for LTCG tax on real estate?
Only resident individuals and Hindu Undivided Families (HUF) are eligible for this option.
Can NRIs claim the indexation benefit for LTCG tax on real estate?
No, NRIs are not eligible for the indexation benefit for LTCG tax on real estate.
Can losses be offset under the new LTCG tax regime?
No, losses cannot be offset under the new LTCG tax regime.
What is the tax rate for LTCG on properties bought after 23 July 2024?
The tax rate for LTCG on properties bought after 23 July 2024 is 12.5% without indexation.
Can property owners claim the indexation benefit for properties bought or inherited before 2001?
Yes, the indexation benefit is retained for properties bought or inherited before 2001.
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