In the recent Union budget when the Modi government's removed the indexation benefits on the sale of asset, the decision sparked outrage from the middle class as indexation has historically allowed homeowners to account for inflation in tax calculations. During announcement made during union budget, government states that by removing indexation, the government aims to simplify the tax calculation process, but this change has led to higher tax liabilities for property owners, as the original purchase price is now used for calculating capital gains without adjustment for inflation.
The government has now however proposed significant relief for individuals who bought houses before July 23, 2024, by giving them the option to choose between two tax rates for long-term capital gains (LTCG) tax. The amendments that the government as proposed will provide a choice between the old and new LTCG tax regimes, only for properties acquired before July 23, 2024. For transfers of a long-term capital asset, for example land or building, by an individual or Hindu Undivided Family, which is acquired before the 23rd day of July, 2024, the taxpayer can compute their taxes under the new scheme (at the rate of 12.5% without indexation) and the old scheme (at the rate of 20.5% with indexation).
This change was made through an amendment to Finance Bill 2024 and offers substantial relief on long-term capital gains for immovable property. The grandfathering provision applies to all property transactions finalized prior to the Budget's presentation on July 23.
When this announcement was rolled out, many concerns were flagged by industry insiders and this matter was even raised by opposition in parliament that the new regime may incentivize the seller to use of more of cash element during property sale. The seller by settling the transaction by using more cash may deflate the actual transaction value on paper to pay less tax. So the real estate experts have welcomed the government's decision to ease the long-term capital gains (LTCG) tax for sale of properties proposed in the Union budget 2024.
The appreciation in prices of reality usually takes more than 3-5 years and the changes would have hurt many investors who have put their faith in real estate and gold, as both assets don't bring in tremendously high returns unless you happen to have brought the right plot of land at the very right moment. Following the news that Nifty reality index was trading up by 1.5% intraday, and stocks like DLF, Oberoi reality are up by more than2%
