FM says option in real estate LTCG to ensure no additional tax burden

Finance minister Nirmala Sitharaman, during a reply on during her reply on the Finance Bill in Lok Sabha, says the logic of the budgetary proposal on long-term capital gains (LTCG) is to standardise, simplify and treat all the asset classes equally for simpler computation, filing, and record-keeping.

After backlash over a budget proposal to remove indexation benefits on capital gains on the sale of immovable property, the finance ministry moved an amendment to the Finance Bill 2024 on August 6, 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 current amendment is for land & building assets acquired by individuals & HUFs before 23rd July 2024. It stipulates that in the case of transfer of a long-term capital asset, being land or building or both, by an individual or HUF, which is acquired before the 23rd of July 2024, the taxpayer can compute his taxes under the new scheme and the old scheme and pay such tax which is lower of the two," the FM tells Parliament, announcing changes to the new rules proposed in the Budget 2024.

The FM says that the Centre is not only coming up with an option but also giving people an option to calculate taxes under both systems. "Whichever is the lower, you pay tax on that. This ensures that no one faces additional tax burdens due to this change...we heard the people who wanted something to change, and we have the courage and conviction."

Several "hypothetical cases" raised in the public discourse suggested that the proposed changes could lead to higher taxes, the FM says. "The current amendment ensures that even in such hypothetical cases, there will be no additional tax burden as a result of the current amendment brought in."

The FM says the capital gains provisions brought in also have "rollover provisions". "Meaning, if somebody had a property which they bought at a particular price, later on, they sell it, the capital gains they get, if they invest in properties up to Rs 10 crore they stand to benefit because there's no tax."

She added: "If in case that isn't happening, you can invest in those bonds which are there under 54EC of the Income Tax Act & there you can invest up to Rs. 50 lakh annually. It stands to benefit the middle class."

Addressing the Modi government's criticism of "ignoring" the middle class, the FM says: "Middle class was on our mind even then & it's there even now, after bringing in this amendment. It was not due to any revenue considerations that we removed the indexation provision. We wanted to bring in simplification & treat all asset classes equally. Now, we've given people also an option to choose indexation if they want."