Government introduces tax relief for homeowners with new LTCG options

New Delhi: In a significant relief for taxpayers, the government has introduced an amendment allowing taxpayers to choose between a 12.5% long-term capital gains (LTCG) tax rate without indexation or a 20% rate with indexation for properties acquired before July 23, 2024. This update was reported by ETNow and included in the list of amendments to the Finance Bill.

Budget 2024 and Indexation Benefits

In Budget 2024, Finance Minister Nirmala Sitharaman proposed eliminating indexation benefits for homeowners. Under the new rules, homeowners who sell their property would have to pay tax on the entire profit amount rather than on the inflation-adjusted profit. Previously, indexation benefits allowed homeowners to adjust the property's cost basis for inflation, thereby reducing the net profit and the associated tax liability.

The official response

The removal of indexation benefits has raised concerns about a substantial tax burden on taxpayers and the potential increase in illicit financial activities in property transactions. Critics argue that the absence of indexation could lead to higher tax liabilities and encourage under-the-table deals to avoid taxes. However, the Income Tax department has refuted these claims, calling the move 'advantageous'.

Choice of tax rate

The newly introduced amendment provides homeowners with a choice: they can either opt for a 12.5% LTCG tax rate without indexation or continue with the 20% rate with indexation. This flexibility is aimed at offering relief to taxpayers, allowing them to select the option that best suits their financial situation.