Indexation Changes and Their Impact on Property Sellers
Sources from Business Today TV indicate that the government is considering applying the proposed changes to indexation prospectively, starting from the financial year 2025-26, rather than implementing them immediately. This adjustment is intended to provide property sellers ample time to plan their transactions accordingly.
The revised taxation rules for capital gains officially took effect on July 23, 2024. Among the proposals under discussion is an option for property sellers to choose between a 20 percent tax rate with indexation or a 12.5 percent rate without indexation under Section 112 of the Income Tax Act. However, there is some resistance to this option, with officials concerned that it might complicate the tax process. As one official remarked, “The rationale is to simplify, not complicate.”
While the government has no plans to reverse the decision to remove indexation benefits, some adjustments may be made to ease the impact on taxpayers, as suggested by industry stakeholders. The indexation benefit has historically allowed taxpayers to adjust the acquisition cost of their properties for inflation before calculating capital gains, thereby reducing their tax liability. The government issues the Cost Inflation Index (CII) annually for this purpose.
Government’s Perspective on Taxation Simplification
Union Finance Minister Nirmala Sitharaman, speaking at the Post Budget Conclave of Business Today-India Today, questioned the need for differentiated tax treatment across various asset classes. She emphasized the need for a more rationalized and simplified approach, saying, “Why do we have this differentiation between all asset classes? Why can’t we rationalize and make it simple? Different treatment and different rates for gold, stock, property. I need to treat all asset classes equally.”
Long-Term Capital Gains Tax: A Significant Revenue Stream
Over the past five years, the government has raised Rs 2.78 lakh crore from long-term capital gains (LTCG) taxes. For the assessment year 2023-24 alone, the Centre collected Rs 98,682 crore, up from Rs 86,075 crore collected in the previous assessment year. These figures highlight the importance of LTCG tax as a revenue stream for the government, underscoring the significance of any changes to its structure.
Tabrez
