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Informist, Tuesday, Aug 6, 2024

 

NEW DELHI – After facing tremendous pressure from the real estate sector, the finance ministry has proposed amendments to The Finance (No. 2) Bill, 2024, by introducing flexibility in the calculation of long-term capital gains tax on unlisted assets, including properties, a senior government official said.

 

As per the amendments circulated to Lok Sabha members today, for any assets, like land or buildings, sold before Jul 23, taxpayers will now have the option to choose between the new and old regimes, whichever lowers their tax liability.

 

Under the new long-term capital gains regime announced in the Budget for 2024-25 (Apr-Mar), the tax rate was set at 12.5% without indexation benefit. Previously, the long-term capital gains tax on these assets was 20% but had indexation benefits, which adjusted for inflation. The proposed amendments effectively give grandfathering provision for property transactions before Jul 23.

 

The tweak in long-term capital gains tax had triggered concerns regarding real estate transactions, as indexation allowed homeowners to account for inflation in tax calculations. Not being able to adjust for inflation would possibly lead to higher taxes, especially on older properties with lower selling prices. As per the Budget proposals, the government retained the indexation benefit for taxpayers on properties bought or inherited before 2001.

 

Once the Budget was over, at every industry interaction, top finance ministry officials were asked to explain the rationale behind this move, while also being requested persistently to rethink the proposal and possibly roll it back. Though in one such interaction, Revenue Secretary Sanjay Malhotra had rhetorically said that if the government proposed a change, it is only after thorough discussions and deliberations, so a rollback of the new taxation on real estate was unlikely. But representations from the sector continued, and the government seems to have yielded.

 

"Through the amendments proposed to the new capital gain tax regime introduced in Budget 2024-25, the finance minister has tried to appease the taxpayers by addressing the concerns raised to some extent," Yogesh Kale, executive director, Nangia Andersen India said. 

 

"While abolishment of indexation benefit continues, properties acquired prior to Jul 23 are proposed to be grandfathered with the option to the taxpayers to offer the capital gain tax either at 12.5% without indexation or 20% with indexation, whichever is more beneficial," he said. 

 

Finance Minister Nirmala Sitharaman today introduced the Finance Bill, 2024, in Lok Sabha. Once the Finance Bill is passed, it will technically mark the completion of budgetary exercise for 2024-25. "Apart from the amendments to the proposed changes in capital gains tax, other amendments are in the nature of fine-tuning and slightly rationalising the original proposals," Kale added.  End

 

Reported by Priyasmita Dutta and Sagar Sen

Edited by Aditya Sakorkar

 

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