The indexation benefit of the LTCG tax in real estate only partially offsets inflation charges

By Bricksnwall | 2024-07-24

The loss of indexation benefits will not apply to existing properties purchased before 2001, which will continue to get indexation benefits.

The indexation benefit provided on long-term capital gains (LTCG) in real estate transactions only partially offset the inflation in property values, which have risen fivefold in the last decade, according to Central Board of Direct Taxes (CBDT) Chairman Ravi Agarwal. According to the government's analysis, the new 12.5 percent LTCG tax rate will benefit taxpayers more, he noted after Finance Minister Nirmala Sitharaman introduced the Union Budget for 2024-25 on July 23.

While the Budget cut the LTCG tax on real estate transactions from 20% to 12.5%, the elimination of the indexation benefit against inflation raised concerns that it would increase the burden on the middle class.

"Though the indexation benefit on LTCG in real estate has been withdrawn, the government's analysis reveals that over the last decade, while the cost of property has climbed fivefold, the indexation benefit has only marginally kept up with inflation. "In contrast, the capital gains tax was 20%," Agarwal said in an interview. (Source - Money Control)

When analyzing statistics from the last ten years, if a person owns a property and the property appreciates 4-5 times, the new tax of 12.5% without indexation will be favorable. Given the increase in property taxes, the additional tax mentioned in the budget will benefit taxpayers," he stated.

The loss of indexation benefits will not apply to properties acquired before 2001; they will continue to receive indexation benefits.

In an effort to rationalize the capital gains tax structure, the Finance Minister increased the LTCG tax rate to 12.5% on all financial and non-financial assets.

Source: Money control