No Reconsideration for LTCG Tax Changes on Property Sales: Government Stance

The government has no plans to reconsider the recent changes to the Long Term Capital Gains (LTCG) tax on property sales, despite concerns over the removal of the indexation benefit, according to a report by news agency ANI.

“There will be no rethink on the LTCG provisions made in the budget as they are beneficial for taxpayers,” sources told ANI.

The Union Budget 2024-25 announced a significant change in LTCG taxation, simplifying the tax structure across asset classes and removing the indexation benefit for capital gains on property sales. This change has raised concerns about increased tax liabilities for property owners and the potential for more black money in property transactions.

The Central Board of Direct Taxes (CBDT) addressed these concerns via a clarification on the social media platform X. The Income Tax Department dismissed claims that the new budget proposal would lead to significantly higher taxes on real estate profits. It highlighted that the proposed flat tax rate of 12.5% without indexation could be more favorable in many cases than the previous 20% rate with indexation benefits.

According to the Income Tax Department, real estate returns typically range from 12-16% annually, higher than the 4-5% inflation rate used for indexation. Therefore, the new tax regime could result in substantial tax savings for many taxpayers.

The department provided examples showing the benefits of the new tax regime for properties sold after different holding periods. For instance, properties held for five years with a 1.7 times price appreciation, for 10 years with a 2.4 times appreciation, or purchased in 2009-10 and appreciated by 4.9 times or more would benefit from the new tax rate. However, if the annual return on property is less than 9-11%, the previous 20% tax rate with indexation may be more advantageous.

The Income Tax Department also emphasized that the new tax structure simplifies compliance, tax computation, filing, and record-keeping, and eliminates differential tax rates across asset classes.