Today a significant announcement was made by the Government of India, as the LTCG (Long Term Capital Gains) tax was amended to provide some relief to the real estate holders.
Changes In Tax Rates For Property
The Finance Minister, Nirmala Sitharaman, in her Budget announcement, had proposed to reduce the tax on property from 20 per cent to 12.5 per cent. But this was also accompanied by the removal of indexation. This brought the homeowners in a very tight corner as this would significantly increase their tax burden.
Today’s Amendment
Today, this proposal was amended. The amendment suggested that the people who have purchased or acquired their property before the 23rd of July, 2024 (Budget session), would have the option to select from between the two rules. They can pay their taxes under the old rule where the taxation was 20%, but followed indexation or they can work under the new rule, with a tax of 12.5% but without any indexation benefits.
How Will This Benefit The Investors?
This amendment makes sure that properties purchased before the Budget session are not deeply impacted, and the people can choose whichever rule gives them a lower tax liability. People are free to calculate taxation under both the regimes and hence safeguard their investments by opting for lower taxation.
Who Is Eligible?
The individuals or Hindu undivided Families (HUF) who got the property before the specified date stand eligible for this new benefit. This is applicable to commercial and also to residential properties.
But What Is Indexation?
Indexation is a feature that adjusts the purchasing price of the property according to the inflation rates. Because of this, the overall capital gain on the property is much lesser and people, hence have to pay lower taxes. Therefore, it is beneficial for investors.
Which Rule Should An Investor Abide By?
The choice between the new or the old rule completely depends upon factors like the holding period of the property, the capital gains made, the inflation rate, etc. It depends on each situation and cannot be generalized as such.
According to some experts, if a property is held for a long duration of time (years), then there would be significant inflation during this period and hence the older scheme with the indexation benefit would result in lower taxes on the property. In the short-run, the new rule is expected to hold more leeway for the investors.
