Finance Bill amended; 20% LTCG with indexation on realty deals optional

In a major relief to the taxpayers, the finance ministry has moved an amendment to the Finance Bill 2024, granting the option to pay long-term capital gains (LTCG) tax rate of 12.5% without indexation or 20% with indexation on property acquired before 23 July 2024. The move comes after backlash on a budget proposal to remove indexation benefits on capital gains on the sale of immovable property.

Experts have welcomed the move. “The amendment related to tax on long-term assets being immovable properties is a welcome move. Now a resident taxpayer can opt for a tax rate, which is more beneficial for properties acquired before 23 July 2023. This gives relief to taxpayers who also opt for exemption u/s 54 to compute and invest the long-term capital gain in another residential unit,” said Hemal Mehta, partner of Deloitte India.

“This will quell taxpayer concerns around losing indexation benefits as a tradeoff for lower long-term capital gains tax rate. Taxpayers can choose the more beneficial regime and should not be worse off because of changes in law. Concerns around the taxation of inflationary gains in respect of immovable property acquired before the change in the law have been addressed,” said Gouri Puri, partner, Shardul Amarchand Mangaldas and Co.

An important point to note however is that grandfathering will be allowed only to resident individuals and HUFs. “For non-resident individuals, companies, partnership firms, LLPs this benefit of indexation in respect of property acquired before July 23, shall not be available,” said CA Ved Jain, past president of the Institute of Chartered Accountants of India (ICAI).

In the Budget 2024-25, the government withdrew indexation benefits for capital gains calculation in case of property sales. With the changes announced in the budget 2024-25, a long-term capital gains tax of 12.5% will be applicable on gains arising out of property sales without the indexation benefits against 20% LTCG along with the indexation benefit earlier.

The move announced in the budget means that those selling property will not be able to adjust their property purchase price at the time of sale with inflation growth over the holding period of the property. The government faced a massive backlash on the move from every quarters. The proposal was opposed by the parties during the discussion on the general budget in the parliament. Finance minister Nirmala Sitharaman on Tuesday moved the Finance Bill for consideration and passage in the Lok Sabha.