The government has rolled back its contentious Budget proposal to remove indexation benefit on long term capital gains (LTCG) tax for property sales after facing backlash. As per amendments being introduced in the Finance Bill, taxpayers will now have a choice to either pay 20% LTCG tax with indexation benefit or 12.5% tax without indexation for properties purchased before July 23, 2024.
Indexation allows adjustment of original purchase price for inflation, reducing tax burden. Its removal was projected to substantially increase tax outgo for many property owners. Critics argued it penalized long term real estate investors and may cause distress sales. The amendments address these concerns by grandfathering all pre-Budget purchases, applicable indexation benefit to reduce tax impact.
For post-July 23 purchases, only the new 12.5% tax regime without indexation will apply. The move provides major relief and is being seen as a big climbdown from the contentious proposals that faced widespread criticism from stakeholders. It ensures property investments made over past decades before the Budget are not impacted, restoring confidence of property owners.
The government had defended removing indexation citing lower 12.5% rate would still benefit most. But despite clarifications, concerns over higher tax burden and lack of grandfathering provision persisted. Facing rising dissent, it has now acceded to demands of introducing choice between old and new regime for pre-Budget purchases, with indexation's re-inclusion addressing the fundamental issues raised.
