In a significant relief for property owners, the central government has proposed a change to long-term capital gains (LTCG) taxes for properties acquired before July 23, 2024. Homeowners will now have the option to choose between a 20 percent LTCG tax with indexation benefits or a 12.5 percent tax rate without indexation.
This amendment follows substantial criticism from the real estate sector and middle-class homeowners, who were concerned about the higher tax liability without indexation benefits, which adjust for market inflation. There were also worries that the removal of indexation benefits might lead to increased cash transactions, potentially fueling black money in the real estate market.
The Changes
According to the new amendments, homeowners who purchased properties before July 23, 2024, can select between the previous tax regime at 20 percent with indexation or the new regime at 12.5 percent without indexation. For properties bought on or after July 23, 2024, the new tax regime will apply by default.
The changes were introduced in the Finance Bill tabled in the Lok Sabha on August 6.
Flexible Options for Homeowners
Indexation adjusts an asset’s purchase price for inflation, thereby reducing gains and tax liability.
The new amendment is seen as a positive move by real estate experts and homebuyers, as it offers flexibility in choosing the most beneficial tax regime, potentially reducing tax burdens.
For example, someone selling an ancestral property from the 1970s in 2024 might find the 20 percent LTCG tax with indexation more advantageous. Conversely, a person who bought a property just one years ago might benefit more from the 12.5 percent rate. This flexibility allows investors and property owners to better manage their real estate investments and maximize returns.
