In the midst of the discussion surrounding the long-term capital gains (LTCG) tax’s effects on the real estate industry, the government is considering a “grandfathering clause” to allay stakeholder concerns. This would presumably permit transactions that were completed prior to July of this year to continue to benefit from earlier indexation rules.
“Grandfathering” is the process by which some persons are exempt from complying with new policies or clauses introduced to laws.
Finance Minister Nirmala Sitharaman reduced the LTCG tax from 20% to 12.5% and announced the removal of indexation benefits from real estate in the Union Budget. By factoring in inflation when determining an asset’s acquisition price, indexation lowers gains and eventually tax obligations. Industry sources claim that the government may consider letting taxpayers select between the existing and new LTCG regimes for real estate purchases.
The situation won’t become apparent, though, until FM Sitharaman tackles the LTCG issue in her probable Wednesday answer to the Finance Bill, according to reports.
The Finance Minister has rationalized the provisions of capital gain taxation on the real estate sector in the Finance Bill 2024, according to Mukul Bagla, Chair of the Direct Tax Committee of the PHD Chamber of Commerce and Industry (PHDCCI). Simultaneously, nevertheless, the Bill has disallowed the benefit of cost indexation for all transactions occurring after July 23, 2024.
The PHD Chamber informed Revenue Secretary Sanjay Malhotra that the aforementioned modification will negatively affect the current real estate deals.
“It was suggested to the Revenue Secretary that the outdated statute be kept in place, if not extended beyond March 31, 2025. Additionally, it was suggested that the SEC be granted the ability to select between the previous system, in which indexation was permitted and taxes were to be paid at a rate of twenty percent, and the new regime, in which taxes are to be paid at a rate of twelve and a half percent but there is no indexation loan,” Bagla told IANS.
The SEC already has these alternatives when deciding how much tax to charge individuals under the existing and new regimes.
“Also, options are available for companies whether to pay tax at the rate of 22 per cent or at a higher rate by claiming deductions, so it was suggested to the Revenue Secretary that an option may also be given in respect of taxation of capital gain, so that the SEC can choose whichever method is more beneficial to it,” Bagla argued.
The Revenue Secretary stated that equity, justice, and simplicity were the driving forces behind the modifications to the LTCG tax structure.
