Govt Reverses Decision: Indexation Benefits Restored For LTCG Tax On Property Sales

In response to widespread criticism, the government has decided to roll back its controversial Budget proposal to remove indexation benefits on long-term capital gains (LTCG) tax from the sale of unlisted assets. Taxpayers now have the option to pay LTCG tax at a rate of 20 per cent with indexation benefit or at a new rate of 12.5 per cent without indexation benefit for properties acquired before July 23, 2024, as per amendments moved in the Finance Bill. Taxpayers are expected to choose the option resulting in the lower tax amount.

This decision effectively grandfathers all properties purchased before 23 July 2024, the date of the Budget presentation. The original proposal did not include grandfathering for properties bought after 1 April 2001. For properties purchased before that date, the fair market value as of 1 April 2001, was to be considered the cost of acquisition.

The amendments mark a significant reversal of the earlier LTCG-related announcements in the Budget. The government initially defended the new LTCG tax regime, arguing that the removal of the indexation benefit was offset by the lower tax rate of 12.5 per cent, which would apply to most property transactions. However, the proposal faced backlash from real estate investors and property owners, leading to calls for a rollback or relief.

“In the case of transfer of a long-term capital asset, being land or building or both, by an individual or HUF (Hindu Undivided Family), which is acquired before the 23rd day of July, 2024, the taxpayer can compute his taxes under the new scheme (at the rate of 12.5 per cent without indexation) and old scheme (at the rate of 20 per cent with indexation) and pay such tax which is lower of the two,” a source explained, highlighting the key amendment.

This move is expected to provide significant relief to taxpayers, aligning with the broader public sentiment and addressing concerns from various stakeholders in the property sector.