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The Union government has provided significant relief to property owners by introducing a choice between two options for long-term capital gains (LTCG) on property: a 20% LTCG tax with indexation or a 12.5% LTCG tax without indexation. This change, included in the Budget 2024 amendments, allows taxpayers to select the option that minimizes their tax liability, offering flexibility and potential savings.
Finance Minister Nirmala Sitharaman initially proposed reducing the LTCG tax on property from 20% to 12.5%, while eliminating the benefit of indexation in Budget 2024. This change was perceived as a setback for homeowners, as indexation adjusts the purchase cost for inflation, thereby reducing taxable gains and overall tax outgo.
However, following widespread discussions and feedback from the real estate sector, the government introduced amendments allowing property owners to choose between the old and new tax rules.
According to the Finance (No. 2) Bill, 2024, taxpayers can opt for either:
This choice ensures that properties bought before July 23, 2024, are not negatively impacted by the new rules, allowing homeowners to calculate their taxes under both schemes and pay the lesser amount.
The decision to opt for indexation benefits or the lower LTCG tax rate should be based on specific financial situations, the holding period of the asset, and the amount of appreciation.
In general, if the property’s value appreciates rapidly, the 12.5% LTCG tax without indexation will likely result in lower tax liability. Conversely, if the appreciation is slower or if there has been significant inflation over a long holding period, the 20% LTCG tax with indexation might be more beneficial.
The new amendments in the Finance Bill, 2024, provide homeowners with a flexible choice to minimize their tax outgo on property sales. Property owners should carefully evaluate their specific circumstances and calculate potential tax liabilities under both the old and new rules to determine the most beneficial option. This strategic choice will ensure optimal tax savings while complying with the latest regulations.
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