Flexibility in LTCG Computation:
For any asset including land or buildings, acquired before July 23, taxpayers can choose between the new and old regimes, opting for whichever results in a lower tax liability.
- New LTCG Regime: Tax rate set at 12.5% without the benefit of indexation.
- Old LTCG Regime: Imposes a 20% tax but allows for indexation benefits.
This flexibility serves as a grandfathering provision for all property transactions completed before the Budget’s presentation in Parliament on July 23.
Amendments to Section 112 of the Income-tax Act:
Amendment to section 112 of the Income-tax Act, 1961:
- Clause (a), (b), (c), (d) and the first proviso are substituted with new provisions effective from July 23, 2024.
- New Provisions:
- (A) Tax at 20% for transfers before July 23, 2024.
- (B) Tax at 12.5% for transfers on or after July 23, 2024.
Proviso Insertion on Page 39 (after line 37):
“Provided further that in the case of transfer of a long-term capital asset, being land or building or both, which is acquired before the 23rd day of July, 2024, where the income-tax computed under item (B) exceeds the income-tax computed in accordance with the provisions of this Act, as they stood immediately before their amendment by the Finance (No. 2) Act, 2024, such excess shall be ignored;”.
Substitution on Page 40 (lines 19 to 35):
- Income-Tax on Long-Term Capital Gains:
- (ii) For gains arising from transfer of capital asset (excluding those in sub-clause (iii)):
- (A) 20% tax for transfers before July 23, 2024.
- (B) 12.5% tax for transfers on or after July 23, 2024.
- (iii) For gains from transfer of unlisted securities or shares of a non-public company:
- (A) 10% tax for transfers before July 23, 2024.
- (B) 12.5% tax for transfers on or after July 23, 2024.
- (ii) For gains arising from transfer of capital asset (excluding those in sub-clause (iii)):
Earlier as per Budget property Rules:
Commentary and Implications:
Finance Minister Nirmala Sitharaman is expected to present this amendment, along with others, in the Lok Sabha on Wednesday following her response to the debate on the Finance Bill 2024.
Implications of Indexation Removal:
The 2024-25 Budget outlines an overhaul of the capital gains tax regime, including lowering the LTCG rate from 20% to 12.5% and eliminating indexation benefits for homes purchased on or after April 1, 2001.
This proposal has sparked concerns regarding real estate transactions, as indexation has historically allowed homeowners to account for inflation in tax calculations.
Indexation Method:
Indexation adjusts the purchase price of an asset for inflation over time, reducing taxable capital gains upon sale. By removing indexation, the government aims to simplify the tax calculation process. However, this change has led to higher tax liabilities for property owners, as the original purchase price is now used for calculating capital gains without adjustment for inflation.
Cost Inflation index
The amendments in the Finance Bill, 2024, particularly concerning the LTCG tax computation for unlisted assets, reflect the government’s responsiveness to taxpayer concerns. The introduced flexibility allows taxpayers to benefit from the more favorable regime, ensuring that the transition to the new tax structure does not unduly burden those with long-held properties.
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