New Indexation Proposal Offers Relief for Property Owners -2024

New Indexation Proposal Offers Relief for Property Owners -2024

New Delhi, August 6, 2024 - In a significant move aimed at addressing the concerns of property owners, Finance Minister Nirmala Sitharaman announced a major amendment to the Union Budget 2024-25. The amendment involves the withdrawal of indexation benefits from real estate and the reduction of the long-term capital gains (LTCG) tax rate from 20 percent to 12.5 percent.

The new proposal, which is set to be introduced in the Finance Bill tabled in the Lok Sabha on August 6, offers taxpayers the option to choose between the old and new tax regimes for property purchased before July 23, 2024. Taxpayers can now compute their taxes under both the new scheme (12.5 percent LTCG without indexation) and the old scheme (20 percent LTCG with indexation), and opt for the more favorable option.

"In the case of transfer of a long-term capital asset, being land or building or both, by an individual or HuF (Hindu Undivided Family), which is acquired before the 23rd day 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," a person familiar with the matter said.

The decision to withdraw indexation benefits, which adjust the purchase price of an asset for inflation to reduce tax liability, has sparked a mixed response. The ruling Bharatiya Janata Party (BJP) cadres have previously expressed concerns that the government was not doing enough for the middle class, a core support base. This latest amendment appears to be a response to those concerns.

However, the removal of indexation benefits has also raised fears of increased cash transactions in the real estate sector, potentially fueling black money activities. Critics argue that the decision could be perceived as anti-middle class, significantly increasing the tax burden for many residential property owners under the new regime.

The impact of the budget announcement was immediately felt in the stock market, with real estate stocks declining on July 23 and continuing to remain in the red the following day.

Revenue Secretary Sanjay Malhotra defended the proposal, stating that other asset classes, including shares, interest, and fixed deposits, do not enjoy indexation benefits. He emphasized that the move should be viewed as a measure to simplify the tax system.

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