Government Restores Tax Relief for Real Estate Investors

In response to concerns raised by real estate investors, the government plans to amend the Finance Bill, 2024, to restore the indexation benefits that were recently eliminated in the property tax regulations.

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Amendments to the Finance Bill, 2024

On Tuesday, the government submitted a list of proposed amendments to the Finance Bill, 2024, to Lok Sabha members. The most significant of these amendments pertain to real estate investments, ensuring that investors can continue to benefit from indexation when calculating their capital gains on property sales. This decision comes in response to widespread objections from the real estate sector regarding the initial changes outlined in the recent budget.

Initial Budget Changes and Backlash

The Union Budget for the financial year 2024-25, presented by Finance Minister Nirmala Sitharaman on July 23, 2023, included a proposal to reduce the long-term capital gains (LTCG) tax rate on property sales from 20% to 12.5%. However, this reduction was coupled with the removal of the indexation benefit, which adjusts the purchase price of property for inflation, effectively increasing the taxable amount on property sales.

This move, intended to simplify the capital gains tax structure across different asset classes, was met with criticism from analysts and investors alike. Many argued that the elimination of indexation would lead to higher tax liabilities for property investors, counteracting the benefits of the reduced tax rate.

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Significance of LTCG Tax Revenue

Long-term capital gains tax has been a crucial revenue stream for the government, contributing Rs 2.78 lakh crore over the past five years. For the assessment year 2023-24 alone, the revenue from LTCG tax was Rs 98,682 crore, underscoring its importance to the national budget.

New Taxation Options for Investors

With the proposed amendment, investors will now have two options when selling property:

1. Old System: Pay a long-term capital gains tax at the rate of 20%, with the benefit of indexation.
2. New System: Pay a reduced long-term capital gains tax of 12.5%, but without the benefit of indexation. This option will only be available for properties purchased before July 23, 2024.

These changes aim to provide greater flexibility for investors while addressing the concerns raised by the removal of the indexation benefit. The government’s move to restore this benefit reflects its commitment to maintaining investor confidence and ensuring a stable real estate market.

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