The Indian government has made a big policy change by deciding to bring back the indexation Benefit & bonus for the sale of homes bought before July 23, 2024.
Indexation Benefit Can Be Taken Back
Many people didn’t like the Budget’s plan to get rid of indexation benefits on long-term capital gains (LTCG). This move is in reaction. Indexation, which changes the price of an object to reflect inflation, lowers the amount of capital gains that are taxed, which is good for taxpayers.
There are two tax options.
Because of the changes made to the Finance Bill, people now have two ways to figure out their LTCG tax on homes they bought before the deadline. They can pay 20% LTCG tax with indexation, or they can choose to pay 12.5% LTCG tax without indexation. Taxpayers will be able to choose the choice that lowers their tax bill. This flexibility is meant to ease concerns that the earlier plan would make it more expensive for people to sell their homes.
Background and the New Regime
Real estate investors and property owners were against the first Budget plan because they thought they would have to pay more taxes because indexation benefits would be taken away. The government said that the new tax rate of 12.5%, which would not be adjusted for inflation, would be good for most deals. One big problem, though, was that there wasn’t a “grandfathering” clause for homes bought before April 1, 2001. The most recent change effectively grandfathers homes bought before July 23, 2024, meaning that the old tax rules apply to these deals.
How it affects the real estate market
The change should help people who are selling their homes because they would have had to pay more in taxes under the new system. There are still worries, though, about the possibility of more trades on the secondary market and of people lying about property values to lower their tax bills. The government has made it clear that the benefits of rollovers for capital gains that are reinvested and the protections for Section 54EC bonds will not change.
More General Implications
As part of the changes, the meaning of “undisclosed income” for block assessments has been expanded to include false claims of exemptions. With this larger definition, tax evasion will be stopped and everyone will be following the rules. The Finance Ministry made changes based on input from the public and business community. These changes strike a balance between the need for tax reform and the needs of property owners and investors.
