Homeowners may receive some relief as the Finance Ministry is reportedly planning to amend the long-term capital gains (LTCG) tax provisions announced in the Union Budget, which had revoked indexation benefits for unlisted assets, including property and gold.
In a significant move sparking both debate and interest, Finance Minister Nirmala Sitharaman’s latest budget has revised the taxation on long-term capital gains (LTCG) from real estate transactions.
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Previously, property sellers in India could reduce their tax liability using “indexation benefits,” which involved adjusting the profit from property sales based on the inflation rate during the ownership period.
Implementation From FY26
According to a Business Standard report, one proposed change is to extend the effective date of the new regime to the next financial year, instead of July 23, the day the Budget was presented in Parliament.
The BS report also mentioned that discussions are ongoing about grandfathering the purchase of all asset classes, including property, so that the indexation provision could apply.
The new capital gains tax rules, which took effect on July 23, 2024, introduced significant changes to the calculation of capital gains. These changes eliminated the ability to adjust the acquisition cost for inflation, known as indexation. This could affect the tax liability of individuals selling their property, gold, or other unlisted assets.
“Some modalities are being worked out in some form in the proposed regime with the intent to provide relief to homeowners,” an official privy to the discussions told BS.
The official, however, confirmed that no significant change is in the offing.
Alternative Proposal
According to a report by Business Today TV, an alternative proposal under review is to offer property sellers a choice between a 20% tax rate with indexation benefits or a 12.5% rate without indexation, as specified in section 112 of the Income Tax Act.
However, some officials have expressed concerns that this could complicate the tax process.
While there are no plans to reverse the decision entirely, adjustments may be considered to mitigate the impact based on feedback from industry stakeholders.
Discussions on the matter began after the real estate sector presented data points, arguing that the new tax structure could be detrimental to homeowners and the industry as a whole.
“The new changes in the works will be accommodated in the Finance Bill,” the official added.
Industry experts warn that many real estate owners, particularly those with residential properties, could face a significant increase in their tax burden without the indexation benefits.
Indexation adjusts the purchase price of assets for inflation, thereby reducing the taxable capital gains. This adjustment is based on the Cost Inflation Index, which is notified by the government.
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