New Delhi: The government on Tuesday proposed significant relief for individuals buying homes before July 23, 2024, giving them an option to choose between two tax rates for long-term capital gains (LTCG) tax.

Budget 2024-25 proposed to reduce LTCG from 20 per cent to 12.5 per cent, but indexation benefit was removed. The new rates have come into effect from July 23, 2024. Indexation benefit allowed taxpayers to calculate the profit from the sale of capital assets after adjusting for inflation.

LTCG tax burden will increase

Tax experts had said the changes proposed in the Budget would increase the LTCG tax burden. According to amendments in the Finance Bill, 2024 circulated to Lok Sabha members on Tuesday, individuals or HUFs buying homes before July 23, 2024 can calculate their taxes under both the new scheme [12.5 per cent without indexation] and the old scheme (20 per cent with indexation) and pay the tax which is lower of the two.

Following the Budget presentation, the Income Tax Department said that the reduction in long-term capital gains tax (LTCG) rates in the real estate sector is expected to result in 'significant tax savings' for most taxpayers.

As per the changes brought in the Budget 2024-25, the government has retained the indexation benefit for taxpayers on properties purchased or inherited before 2001.

Yogesh Kale, Executive Director, Nangia Andersen India, said through the amendments proposed in the new capital gains tax regime introduced in Budget 2024, the Finance Minister has tried to appease taxpayers to some extent by addressing the concerns raised.

Indexation benefit continues to be phased out

Kale said that while indexation benefit continues to be phased out, assets acquired before July 23, 2024 are proposed to be grandfathered with an option for taxpayers to pay capital gains tax at 12.5% ​​without indexation or 20% with indexation, whichever is more beneficial.

Gauri Puri, partner, Shardul Amarchand Mangaldas & Co, said this will address the concerns of taxpayers that they would lose indexation benefits in exchange for a lower long-term capital gains tax rate. “Taxpayers can choose a more beneficial regime and should not suffer further losses due to the change in law. Concerns about taxation of inflation gains in respect of real estate acquired before the change in law have been addressed,” Puri said.