Indexation Benefit to Stay: Government rolls back decision to scrap indexation on property transactions

The central government is bringing an amendment to the Finance Bill, 2024, to allow people select either a 12.5% long-term capital gains tax rate without indexation or a 20% rate with indexation for property acquired before July 23, 2024.

Earlier, in the budget 2024-25, the government had removed indexation benefit on real estate property sales and reduced the long term capital gains tax from 20% to 12%. However, this decision did not go well with many stakeholders in the real estate sector and government faced a backlash.

Responding to feedback, the Centre has agreed to reconsider its decision to totally scrap the indexation benefits on property transactions after widespread opposition from various stakeholders of the realty space.

Indexation benefits on long-term capital gains from property transactions are here stay.

Indexation or Lower Tax – Choice is Yours!

The central government has moved an amendment to the Finance Bill, 2024, which will now allow people choose either a 12.5% long-term capital gains tax rate without indexation or a 20% rate with indexation for property acquired before July 23, 2024.

With this decision, taxpayers can calculate to identify the better option for capital gains tax on sale of land or building acquired before July 23, 202.

Capital Gain Taxation Options

• Pay a lower rate of tax at 12.5% without indexation
• Pay 20% with indexation

Indexation adjusts asset purchase prices based on inflation, reducing taxable gains. However, the removal of this benefit may increase the tax burden for sellers. The new Long-Term Capital Gains tax rate was 12.5%, reduced from 20% but without indexation benefit in the budget of 2024-25.