No Reversal on Real Estate LTCG Tweaks: Government Stands Firm
Government sources have confirmed that there will be no reevaluation of the changes made to Long Term Capital Gains tax (LTCG) in the Union Budget, despite concerns over the removal of Indexation benefit on property sales.
Real EstateLtcgUnion BudgetCapital Gains TaxIndexation BenefitReal EstateJul 24, 2024
One of the significant announcements made by Union Finance Minister Nirmala Sitharaman during the budget presentation was the simplification of LTCG across various asset classes. However, the decision to do away with the Indexation benefit on capital gains related to property sales has raised eyebrows, with many expressing fears that it could lead to a massive tax liability for taxpayers and encourage black money generation in property transactions.
In an effort to allay these concerns, the Central Board of Direct Taxes (CBDT) issued a clarificatory note on social media platform X. The Income Tax Department has maintained that the proposed new tax rate without indexation is beneficial in most cases, as nominal real estate returns are generally in the region of 12-16 percent per annum, much higher than inflation.
The budget 2024-25 has proposed a flat capital gain tax of 12.5 percent on capital appreciation on selling property, as opposed to a 20 percent tax on capital appreciation with indexation benefits. According to the Income Tax Department, substantial tax savings are expected for a vast majority of taxpayers under the new proposal.
In addition, the department has explained that there will be tax savings under the new proposal on properties sold in different time durations. For instance, for properties held for five years, the new regime will be beneficial if the property price has appreciated 1.7 times or more. Similarly, if a property is held for 10 years and it has appreciated 2.4 times or more, the new tax regime will be beneficial for the taxpayer.
While the Income Tax Department acknowledges that if the per annum return on property price is less than 9-11 percent, the earlier tax rate of 20 percent with indexation will be beneficial, it believes that the simplification of the tax structure will bring ease of compliance in computing taxes, filing, and maintaining records.
The government's decision to stand firm on the LTCG tweaks is seen as a significant step towards rationalizing the tax regime and promoting transparency in the real estate sector.
Frequently Asked Questions
What is the main concern regarding the changes made to LTCG in the Union Budget?
The main concern is the removal of Indexation benefit on property sales, which could lead to a massive tax liability for taxpayers and encourage black money generation in property transactions.
What is the proposed flat capital gain tax rate on selling property in the budget 2024-25?
The proposed flat capital gain tax rate on selling property is 12.5 percent.
How does the Income Tax Department justify the removal of Indexation benefit?
The department claims that nominal real estate returns are generally higher than inflation, and therefore, the proposed new tax rate without indexation is beneficial in most cases.
What are the benefits of the new tax regime, according to the Income Tax Department?
The department claims that the new regime will bring tax savings for a vast majority of taxpayers, ease of compliance in computing taxes, filing, and maintaining records, and removal of differential rates of taxes for various asset classes.
Will the new tax regime be beneficial for all taxpayers?
No, the Income Tax Department acknowledges that if the per annum return on property price is less than 9-11 percent, the earlier tax rate of 20 percent with indexation will be beneficial.
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