Simplifying Tax Regime: Indexation Removal to Benefit Most in Real Estate
Revenue Secretary Sanjay Malhotra explains how the removal of indexation in capital gains tax will benefit taxpayers, particularly in the real estate sector.
Real EstateCapital Gains TaxIndexationTax ReformIncome TaxReal EstateJul 25, 2024
The removal of indexation means that the tax rate has been reduced from 20% to 12.5%. Malhotra points out that people are focusing on the removal of indexation rather than the reduction in tax rate. He explains that unlisted companies will hugely benefit from this move, as their returns every year are generally more than 13%-14%-5%. In the real estate sector, a vast majority of taxpayers will also benefit, as the average tax rate would be much more than 12.5%.
Malhotra rejects the notion that the removal of indexation is a backdoor entry of wealth tax, emphasizing that there is no inheritance tax. If an individual reinvests the money from selling a property into buying another house, their wealth remains, and there is no tax on it. However, if they sell the property and generate cash, the proceeds become taxable.
The government has not estimated any revenue gain from this change, and Malhotra believes that the revenue impact may even be negative. The government is committed to a comprehensive review of the income tax law, with the aim of making it more simple and lucid. An internal committee of officers will undertake the review, consulting stakeholders and incorporating previous reports.
Malhotra also addressed concerns about the income tax portal being slow, attributing it to technology issues. He expressed confidence that the portal will smoothly accept all returns by July 31, and there is no possibility of extending the last date for filing returns.
Finally, Malhotra explained that the government decided against extending the benefit of lower tax rates for new manufacturing units, as the current tax rates are reasonable and will help attract good investment. The government has taken several measures to spur investment, including the removal of angel tax and lowering tax rates for foreign companies.
Frequently Asked Questions
What is the impact of removing indexation on capital gains tax?
Most taxpayers, particularly in the real estate sector, will benefit from the removal of indexation, as the tax rate has been reduced from 20% to 12.5%.
Is the removal of indexation a backdoor entry of wealth tax?
No, it is not. There is no inheritance tax, and if an individual reinvests the money from selling a property, their wealth remains, and there is no tax on it.
What is the estimated revenue gain from this change?
The government has estimated nil revenue gain from this change, and the revenue impact may even be negative.
Will the income tax portal be able to handle the peak filing season?
Yes, the government is confident that the portal will smoothly accept all returns by July 31, and there is no possibility of extending the last date for filing returns.
Why did the government decide against extending the benefit of lower tax rates for new manufacturing units?
The government believes that the current tax rates are reasonable and will help attract good investment, and has taken several measures to spur investment, including the removal of angel tax and lowering tax rates for foreign companies.
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