Big relief for home buyers: Centre makes revisions in LTCG indexation on real estate. Details inside

In a big relief for home buyers, the government has amended the Long-Term Capital Gains (LTCG) regime for real estate, allowing taxpayers to choose between a lower tax rate of 12.5% without indexation or a higher rate of 20% with indexation for properties acquired before July 23, 2024, enabling individuals or Hindu Undivided Families (HuFs) to compute their taxes under both schemes and pay the lower amount.  This change was made through an amendment to Finance Bill 2024.

This offers substantial relief on long-term capital gains for immovable property. This flexibility provided in the grandfathering provision stands as a measure that applies to all property transactions finalised prior to the Budget's presentation on July 23. 

"In the case of transfer of a long-term capital asset, being land or building or both, by an individual or HuF, which is acquired before the 23rd day of July, 2024, the taxpayer can compute his taxes under the new scheme [@12.5% without indexation] and old scheme [@20% with indexation] and pay such tax which is lower of the two."

In Union Budget 2024, Finance Minister Nirmala Sitharaman made significant tax-related announcements. Of which, one of the key changes involved the removal of indexation benefits for real estate transactions and the reduction of long-term capital gains (LTCG) tax from 20% to 12.5%.

Indexation, which accounts for inflation by adjusting the purchase price of an asset, serves to lower gains and, consequently, decrease the individual's tax obligations.

The updated regulations, which were announced recently, will come into effect on July 23, 2024. It's important to note that properties acquired before 2001 will continue to benefit from indexation. This means that only recent acquisitions will be subject to the new rules. If you complete any transactions before the mentioned date, they will not be impacted by the new regulations.

Before the Budget 2024, indexation benefits helped homeowners to increase the property's cost basis to account for inflation, thereby reducing the net profit and the associated tax liability.

In the recent Union Budget, FM Sitharaman made notable changes to the New Tax Regime. The Standard Deduction, which was raised to Rs 75,000 in the new tax structure. Additionally, revisions were made to the tax slabs under the new regime.

Furthermore, the securities transaction tax (STT) applicable to futures and options saw an increase, with the rates for the sale of options in securities rising from 0.0625% to 0.1% of the option premium and for futures from 0.0125% to 0.02%.

Noteworthy among the alterations was the adjustment in the capital gains tax for shares and stocks, which surged from 10% to 12.5%. This elevation translates to a reduction in post-tax returns by 2.5%.