Indexation Benefit Returns, Potentially Reducing Tax Burden

In a move to provide relief to property owners, the government has proposed amendments to the Finance Bill 2024, offering a choice between two long-term capital gains (LTCG) tax rates for properties purchased before July 23, 2024.

Key Changes:

• Option 1: Pay a 12.5% LTCG tax without indexation benefit.

• Option 2: Pay a 20% LTCG tax with indexation benefit (as per the old system).

• Taxpayers can choose the option that results in a lower tax liability.

Background

The Union Budget 2024-25 initially proposed lowering the LTCG tax rate from 20% to 12.5% but removed the indexation benefit. This change faced criticism for potentially increasing the tax burden on many property owners, especially those who had held their properties for a long time.

Indexation Benefit Explained

Indexation allows taxpayers to adjust the purchase price of a property for inflation, effectively reducing taxable gains. This is particularly beneficial for properties held for a long duration, as inflation can significantly increase their value over time.

Who Benefits?

• Property owners who purchased their property before July 23, 2024.

• Individuals and Hindu Undivided Families (HUFs).

Next Steps

If you're considering selling a property, it's crucial to carefully evaluate both LTCG tax options to determine which one will result in lower taxes for your specific situation. Consult a tax professional if you need assistance with the calculations or understanding the implications of each option.

Remember: The government's decision to offer a choice in LTCG tax calculation demonstrates its responsiveness to taxpayer concerns. Take advantage of this opportunity to potentially minimize your tax liability and make informed decisions about your property investments.

-source: tribuneindia.com