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Government Reinstates Indexation Benefit on Sale of Property

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Synopsis:

The government has reversed its decision to remove the indexation benefit on long-term capital gains (LTCG) from property sales. Taxpayers can now choose between a 12.5% LTCG rate without indexation or a 20% rate with indexation for properties acquired before July 23, 2024.

Indexation Benefit on Sale of Property Brought Back

The government has introduced a major amendment to the Finance Bill, providing taxpayers with a choice between two long-term capital gains (LTCG) tax rates for properties acquired before July 23, 2024.

This amendment comes as a significant relief to the real estate sector and individual taxpayers alike.

New Tax Options for Property Sales

Taxpayers now have the option to choose between a 12.5% LTCG rate without indexation and a 20% rate with indexation for long-term capital gains on immovable properties.

This amendment is aimed at addressing the concerns raised by stakeholders in the real estate sector, who had warned that the removal of indexation benefits could hinder the sector's growth.

Background and Rationale

In the Budget 2024, Finance Minister Nirmala Sitharaman proposed eliminating indexation benefits for homeowners. Indexation adjusts the purchase price of an investment to reflect inflation, thus reducing the taxable capital gain.

The initial proposal required taxpayers to pay taxes on the full profit amount, potentially leading to a higher tax burden.

The sector responded sharply, leading to a significant drop in real estate stocks. Analysts warned that eliminating indexation benefits could drive up illicit financial activities in property transactions.

However, the Income Tax department countered these claims, stating that the move was advantageous.

Impact of the Amendment

This development offers substantial relief to taxpayers, particularly those selling long-term capital assets such as land or buildings. By providing a choice between the two tax schemes, the government ensures that taxpayers can opt for the most beneficial option, potentially reducing their tax liability.

The Finance Ministry has acknowledged the concerns and has engaged in discussions with the Prime Minister's Office. The inclusion of this amendment in the Finance Bill is a step towards addressing the real estate sector's apprehensions and ensuring a fair tax regime.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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