NEW DELHI: Facing backlash from investors and property owners, the Centre has decided to give a major relief to real estate investors by allowing them to opt for either a 12.5% long-term capital gains tax rate without indexation or a 20% rate with indexation for property purchased before July 23, 2024.
The respite has been given to resident Individual and Hindu Undivided families (HuFs). For non-residents and companies, partnership firm, LLP, the indexation benefits won’t be available.
The change has been included in the amendment to the Finance Bill 2024. As per the proposed amendment: “In the case of transfer of a long-term capital asset, being land or building or both, by an individual or Hindu undivided Family (HuF), which is acquired before the 23rd day of July, 2024, the taxpayer can compute his taxes under the new scheme [@12.5% without indexation] and old scheme [@20% with indexation] and pay such tax which is lower of the two,”
In her Budget speech last month, Finance Minister Nirmala Sitharaman said the tax on LTCG was slashed to 12.5% without indexation from 20% with indexation. That necessarily meant that the indexation benefit would not be available on real estate transactions for assets bought after 2001.
Following this, property owners and the real estate sector had expressed concerns as the seller was forced to pay tax on the entire gain made without adjusting for inflation. The Opposition, too, criticised the changes and demanded roll back of the move.
Niranjan Hiranandani, chairman of Hiranandani Group and NAREDCO, said that the government’s initiative to allow taxpayers the option to compute taxes either at 12.5% without indexation or at 20% with indexation on real estate transactions is a significant step forward.
Market experts had earlier said that removal of indexation benefits from property sales would force investors to pay more in taxes if property prices are appraised in single digits year-on-year. However, they stand to gain in scenarios where the property prices have risen in the range of 12%-13% or more per year.