Real Estate Sector to Regain Momentum: How Grandfathering Provisions Bring Relief to Taxpayers
The introduction of grandfathering provisions has brought relief to taxpayers who already hold immovable property, addressing concerns over the removal of indexation benefits.
Real EstatePropertyTaxLtcgCapital GainsReal Estate MumbaiAug 07, 2024
Rationalisation of capital gains tax regime was a key aspect of the Budget 2024 proposals. The finance minister had proposed to reduce the tax rate on gains from the sale of immovable assets from 20% (with indexation) to 12.5% (without indexation) for sales on or after July 23, 2024. However, this proposal was met with concern among taxpayers, particularly those who hold immovable property and are affected by the retrospective taxation element.
Before the Budget 2024 proposal, long-term capital gains (LTCG) arising from the transfer of an immovable property were subject to tax at 20%, with the benefit of indexation. For properties acquired before April 1, 2001, taxpayers could deduct the actual cost of acquisition or the fair market value as on April 1, 2001, whichever was higher.
The Budget 2024 originally proposed to tax LTCG at 12.5% without indexation for transfers taking place on or after July 23, 2024. However, upon receiving representations, the government has addressed the concerns of taxpayers through the Finance (No. 2) Bill, 2024.
The amended bill contains a grandfathering clause that provides an option to taxpayers to calculate tax on LTCG from transfer of immovable properties acquired before July 23, 2024, either at 12.5% without indexation or at 20% with indexation, whichever is beneficial.
This introduction of grandfathering provisions has set to rest the anxiety amongst taxpayers who already hold immovable property. The provisions ensure that taxpayers are not at a loss due to the removal of indexation benefits. Extensive analysis by the government has shown that the reduction of tax rate to 12.5% along with removal of indexation benefit would benefit taxpayers in many cases.
According to the analysis, many future buyers may also not be at a loss due to the new tax rate of 12.5% without indexation proposed in Budget 2024. This brings relief to taxpayers who plan to sell their properties in the future.
With the concerns of taxpayers addressed, the real estate sector is likely to regain momentum. The amendments to the Finance (No. 2) Bill, 2024, have brought a sense of clarity and stability to the sector, benefiting both existing property holders and future buyers.
Frequently Asked Questions
What is the new tax rate on long-term capital gains from immovable property?
The new tax rate is 12.5% without indexation for sales on or after July 23, 2024.
What is the benefit of the grandfathering clause in the Finance (No. 2) Bill, 2024?
The grandfathering clause allows taxpayers to choose between the old and the new capital gains tax regimes, ensuring they are not at a loss due to the removal of indexation benefits.
How will the amendments to the Finance (No. 2) Bill, 2024, affect the real estate sector?
The amendments are likely to bring momentum back to the real estate sector, benefiting both existing property holders and future buyers.
What is the impact of the removal of indexation benefits on taxpayers?
The removal of indexation benefits was a concern among taxpayers, but the grandfathering clause has addressed this concern, ensuring taxpayers are not at a loss.
Who is eligible to benefit from the grandfathering clause?
Taxpayers (individuals/Hindu Undivided Family) who hold immovable property acquired before July 23, 2024, are eligible to benefit from the grandfathering clause.
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