Government Proposes LTCG Tax Cuts: Real Estate Sector Reacts

The government proposed reducing the long-term capital gains (LTCG) tax on immovable properties from 20% to 12.5%, but eliminated the indexation benefits for inflation adjustment. Experts and stakeholders in the real estate sector expressed concerns, suggesting that this change might lead to higher taxes, affecting sellers and the overall real estate market.

The government on Tuesday proposed lowering the long-term capital gains (LTCG) tax on immovable properties to 12.5% from 20%, while removing indexation benefits designed to offset inflation. Experts criticize the move as 'negative' for sellers.

According to the Union Budget memorandum, the indexation benefit currently available under Section 48 of the Income Tax Act for properties, gold, and unlisted assets will be eliminated along with the tax reduction. This change aims to simplify tax computations for both taxpayers and tax administration, the government claims.

Finance Secretary T V Somanathan argued that the new 12.5% rate without indexation is more favorable than the existing 20% rate with indexation in 95% of cases, benefitting the middle class. However, the indexation benefit will still apply to properties purchased before 2001.