The government has moved an amendment to the Finance Bill, 2024, to let taxpayers select either a 12.5% long-term capital gains tax rate without indexation or a 20% rate with indexation for property acquired before July 23.
Finance Minister Nirmala Sitharaman, while presenting the Union budget 2024 last month, announced that the tax on LTCG had been slashed to 12.5% from 20%. However, the indexation benefit on real estate transactions for properties bought in and after 2001 was scrapped.
This implies that the seller of a property would be liable to pay tax on the entire gain made without adjusting for inflation. The announcement has sparked confusion and concern around the profit made on property sales and real estate transactions.
The indexation benefits allowed the seller of real estate to adjust for the impact of inflation when calculating capital gains. The inflation impact was calculated based on the Cost Inflation Index published by the Central Board of Direct Taxes on an ongoing basis. The base of the index was set as April 1, 2001, with the value at 100.
Properties under construction have grown by nearly seven times in value on average, while the overall real estate sector has grown nearly four times since 2009, according to ANAROCK data.
