Government Stands Firm on LTCG Simplification Amid Concerns Over Indexation Benefit Removal

Government sources assert no changes to the LTCG tax provisions despite concerns. The new budget proposes a flat 12.5% tax rate without indexation for property sales, which the IT department claims benefits most taxpayers. The simplification aims to ease tax compliance and unify asset class rates.

Amid concerns over the removal of Indexation benefit on property sales for tax calculation, government sources on Wednesday confirmed that there will be no reconsideration on changes made to Long Term Capital Gains (LTCG) tax in the Union Budget. 'There will be no rethink on LTCG provisions made in the budget as it is beneficial for taxpayers,' sources stated.

LTCG simplification across asset classes was one of the major announcements made by Union Finance Minister Nirmala Sitharaman in the Union Budget 2024-25. Interestingly, the Indexation benefit on capital gains related to property sales was eliminated, sparking concerns of a substantial tax liability and potential for black money generation in property transactions.

Nevertheless, the Central Board of Direct Taxes issued a clarificatory note on social media platform X. The Income Tax Department refuted claims that people would face higher taxes on real estate profits under the proposed flat 12.5% tax rate without indexation. They argued that the new tax rate without indexation is advantageous in most cases.

The budget 2024-25 has proposed a flat capital gain tax of 12.5% on capital appreciation from property sales, replacing the previous 20% tax on capital appreciation with indexation benefits. The Income Tax Department's social media post highlighted that nominal real estate returns typically range from 12-16% per annum, much higher than inflation. With inflation indexation generally around 4-5%, substantial tax savings are expected for a majority of taxpayers.

The department also clarified that there would be tax savings under the new proposal for properties sold across different time durations. For properties held for five years, the new regime is beneficial if their price has appreciated 1.7 times or more.

Furthermore, the Income Tax Department added that for properties held for ten years with a price appreciation of 2.4 times or more, the new tax regime would be favorable. For a property bought in 2009-10 with its value increasing 4.9 times or more, the new proposal would be beneficial for taxpayers.

However, the department acknowledged that if the per annum return on property is below 9-11%, the previous tax rate of 20% with indexation would be advantageous. They emphasized that the simplification of any tax structure aids in the ease of compliance in computing taxes, filing, and maintaining records, with the new proposal also removing differential rates of taxes for various asset classes. (ANI)