The government is going to give a big relief to the disappointed property owners after the indexation benefit was removed from real estate in Budget, 2024. The government has proposed an amendment in the Finance Bill. If this amendment is approved in Parliament, then taxpayers will now get the option of assessing long term capital gain tax (LTCG) on real estate property.
According to the proposed amendment, if the property owner sells the property purchased before July 23, 2024, then he can choose any one of the beneficial schemes, the new tax system implemented in this budget or the old system with indexation.
Finance Minister will introduce the Finance Bill in Lok Sabha
This time in the budget, it was announced that the old indexation system of tax under long term capital gain on sale of property will be abolished and 12.5 percent tax will be imposed on LTCG. In the old system, 20 percent tax has to be paid along with indexation.
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Finance Minister Nirmala Sitharaman will present the Finance Bill with amendments in the Lok Sabha on Wednesday for passing. After the announcement of the Finance Minister in the budget, homeowners who earn profit by selling the property have to pay tax at the rate of 12.5 percent on the entire profit and not on the inflation adjusted profit.
This was the problem with indexation
Indexation is used to adjust the purchase price of an investment to the effect of inflation on it. Previously, indexation benefits allowed homeowners to increase the cost basis of a property to take into account the effect of inflation, thereby reducing the net profit and the associated tax liability. The announcement of abolishing indexation had raised fears of a heavier tax burden on taxpayers and an increase in illegal financial activities in property deals.
The issue of abolishing indexation is not related to black money
However, former revenue secretary Sanjay Malhotra has said that there is no loss to property owners by ending the indexation system in real estate, because under this system, there was a tax of 20 percent which has now become 12.5 percent. Real estate usually gives a return of 10-11 percent. If there is an old place where returns are not coming, then it is a different matter. He also said that the issue of ending indexation is not related to black money.
