Govt has no plan to reconsider real estate LTCG tax changes, says report

Amid concerns about the removal of the indexation benefit for property sales under the Long Term Capital Gains (LTCG) tax, there will be no reconsideration of the changes made in the Union Budget, according to news agency ANI.

"There will be no rethink on LTCG provisions made in the budget as it is beneficial for the tax payers" sources were quoted as saying by ANI.

One of the major announcements in the Union Budget 2024-25 was the simplification of LTCG across asset classes. Notably, the indexation benefit for capital gains on property sales has been eliminated.

This change has sparked worries about increased tax liabilities for taxpayers and potential black money generation in property transactions. In response, the Central Board of Direct Taxes issued a clarification on social media platform X.

The Income Tax Department refuted claims that the new budget proposal would result in significantly higher taxes on profits from selling real estate. It emphasized that the proposed flat tax rate of 12.5% without indexation could be advantageous in many cases compared to the previous 20% rate with indexation benefits.

According to the Income Tax Department's social media post, real estate returns typically range from 12-16% per annum, which is higher than the 4-5% inflation rate considered for indexation. As a result, the new tax regime could lead to substantial tax savings for most taxpayers.

The department explained that the new tax proposal would be beneficial for properties sold after different holding periods. For properties held for five years, if the price has appreciated by 1.7 times or more, the new regime is advantageous. For properties held for 10 years with a 2.4 times appreciation, the new tax rate remains beneficial. For properties bought in 2009-10 and appreciated by 4.9 times or more, the new tax proposal is also advantageous.

However, if the annual return on property price is less than 9-11%, the previous 20% tax rate with indexation may be more beneficial.

The Income Tax Department also noted that the simplification of the tax structure enhances ease of compliance, tax computation, filing, and record-keeping, and removes differential tax rates across various asset classes.