Will government reconsider real estate LTCG tweaks?

LTCG tax updates India: There will be no reconsideration of changes made to the Long-Term Capital Gains (LTCG) tax in the Union Budget 2024-25, news agency ANI reported quoting government sources amid concerns regarding the removal of the indexation benefit on property sales for tax calculation.

"There will be no rethink on LTCG provisions made in the budget as it is beneficial for the taxpayers," the report said.

The simplification of LTCG across asset classes was a significant announcement by Union Finance Minister Nirmala Sitharaman in the Union Budget 2024-25. Notably, the indexation benefit on capital gains related to property sales was eliminated, causing concerns about potential increases in tax liabilities and the possible generation of black money in property transactions.

However, the Central Board of Direct Taxes (CBDT) issued a clarificatory note on the social media platform X. The Income Tax Department refuted reports suggesting that people would face higher taxes on profits from selling a house or land property under the budget proposal of a flat 12.5 per cent tax without indexation. It stated that the proposed new tax rate without indexation is beneficial in most cases.

The budget 2024-25 proposes a flat capital gains tax of 12.5 per cent on capital appreciation from property sales, replacing the previous 20 per cent tax with indexation benefits. The Income Tax Department explained that nominal real estate returns typically range from 12 per cent to 16 per cent per annum, significantly higher than inflation. Indexation for inflation is approximately 4 per cent to 5 per cent, depending on the holding period. Therefore, substantial tax savings are anticipated for the majority of taxpayers.

The Income Tax Department also clarified that the new proposal would result in tax savings for properties sold after different holding periods. For instance, properties held for five years will benefit under the new regime if the property price appreciates by 1.7 times or more. Similarly, for properties held for ten years, the new regime will be advantageous if the property value increases by 2.4 times or more. If a property purchased in 2009-10 appreciates by 4.9 times or more, the new tax proposal will be beneficial for taxpayers.

However, the department acknowledged that if the annual return on property price is less than 9 per cent to 11 per cent, the previous tax rate of 20 per cent with indexation would be more beneficial.

The Income Tax Department stressed that simplifying the tax structure offers benefits such as ease of compliance in computing taxes, filing, and maintaining records. The new proposal also removes differential tax rates for various asset classes.

(With ANI inputs.)