In a significant move, the Indian government introduced amendments to the long-term capital gains (LTCG) tax provisions for real estate in the Finance (No. 2) Bill, 2024, presented in the Lok Sabha on August 7, 2024. This amendment offers crucial relief to property owners, especially those who purchased properties before July 23, 2024.
The amendment allows homeowners to compute their tax liability using the old rules if they are more beneficial, specifically for properties acquired before July 23, 2024. This measure is vital for those who might have faced higher taxes due to the removal of the indexation benefit.
If the tax calculated under the new rules (12.5% without indexation) exceeds what would have been paid under the old system (20% with indexation), the property owners have the flexibility to choose from either of the options to pay tax whichever option is beneficial for them.
In our previous budget analysis, we did some scenario analysis and concluded that if the return (capital gain) is more than 10%, it is beneficial to pay tax under new provision i.e. 12.5% without indexation, and if the return is less than 10%, property owners will now have the option to pay tax under old tax methods which is more beneficial for them. This ensures homeowners aren't unfairly taxed under the new provisions.
The amendment specifies that if a property’s sale results in an actual loss (e.g., sold for less than its original purchase price), this loss can still be carried forward or set off against other gains. However, losses purely due to the removal of indexation are not considered allowable.
Example Scenario: Consider a property bought in FY2013-14 for ₹ 1Cr., with an indexed cost of ₹1.65 Cr, now being sold for ₹1.5 Cr. Under the new rules, no loss is allowable, and no tax is payable either. If the property was originally bought for ₹1 Cr and sold for ₹90 lakhs, the ₹10 lakhs loss can be carried forward.
The recent amendment to the LTCG tax provisions in the Finance (No. 2) Bill, 2024, is a welcome relief for homeowners and real estate investors. It addresses concerns about potential unfair taxation due to the removal of indexation benefits, ensuring that the tax burden is more equitable.
At Sinhasi Consultants, we had anticipated the need for such a revision and discussed it in our previous budget analysis. We emphasized the potential illogical impact of the earlier changes and are pleased to see that the government has taken steps to address these issues. Homeowners are advised to consult with financial professionals to understand how these changes impact their specific situations and to take full advantage of the available relief options.
