No Reconsideration on LTCG Tax Changes, Says Government

Government sources confirmed no reconsideration on Long Term Capital Gains (LTCG) tax changes amid removal of indexation benefit for property sales. The Central Board of Direct Taxes clarified that the new 12.5% flat tax rate will generally benefit taxpayers, addressing concerns over increased liabilities.

Amid concerns about the removal of Indexation benefits for property sales in tax calculations, government sources on Wednesday confirmed that there will be no reconsideration of the Long Term Capital Gains (LTCG) tax changes featured in the Union Budget. "There will be no rethink on LTCG provisions made in the budget as it is beneficial for taxpayers," said sources.

One of the major announcements by Union Finance Minister Nirmala Sitharaman in the Union Budget 2024-25 was the simplification of LTCG across asset classes. Notably, the indexation benefit on capital gains from property sales was eliminated. Critics argue this could result in substantial tax liabilities and possibly foster black money in real estate transactions.

However, the Central Board of Direct Taxes issued a clarificatory note on social media platform X. Contrary to reports, the Income Tax Department stated that the new flat 12.5% tax rate without indexation would be beneficial in most cases. The budget proposed a shift from the previous 20% tax with indexation benefits to a flat 12.5% tax. According to the department, typical real estate returns are much higher than inflation rates, which would lead to significant tax savings for most taxpayers.

The Income Tax Department further clarified that tax savings would vary based on how long properties are held. For example, properties held for five years would benefit if their prices appreciated by 1.7 times or more. For a 10-year holding period, the new regime would be advantageous if property values increased by 2.4 times or more.

The department also indicated that for properties bought in 2009-2010 and appreciated by 4.9 times or more, the new tax proposal would be advantageous. However, if the annual return on property is less than 9-11%, the previous 20% tax with indexation will be more beneficial. The simplification of tax structures aims to ease compliance, filing, and record-keeping, eliminating differential tax rates for various asset classes.