Big relief to home buyers: Central government may change property tax proposal
On Tuesday, the government proposed to provide relief to taxpayers regarding capital gains tax on real estate properties. According to this proposal, property owners have been given two options for capital gains:
- 12.5 per cent tax rate: Tax can be paid at this rate without including the effect of inflation on the value of the property. This option is available to those who have purchased the house before July 23, 2024, or is also available to Hindu Undivided Families (HUF).
- 20 per cent tax rate: This option includes the effect of inflation (indexation benefit).
The details of this amendment have been provided to the Lok Sabha members in the Finance Bill, 2024. Property owners will have the freedom to choose the option from these two options in which the amount of tax will be less for them.
Finance Minister Nirmala Sitharaman, while presenting Budget 2024-25, had announced that the indexation benefit from property sales would be removed and the tax rate would be fixed at 12.5 per cent. Discontent was expressed in various quarters over this proposal.
Budget 2024: Proposed changes in indexation rules
As per the proposed change, homeowners will now pay tax on the full amount of profit earned by selling their property, not on the inflation-adjusted profit. Indexation is used to adjust the cost of the property according to inflation, which is used to reduce the net profit and the related tax liability.
Now, the elimination of the indexation benefit has raised fears of the increased tax burden on taxpayers and the increase in illegal financial activities in property deals. However, the Income Tax Department has refuted this claim and termed it ‘beneficial’.
According to the report, two options have been given:
- 12.5 per cent tax rate: Under this rate, the profit will be taxed without indexation.
- 20 per cent tax rate: Indexation benefits can be used in this.
Additionally, some grandfathering schemes for ancestral properties have also been proposed. The Finance Ministry has reviewed various concerns raised over this move, including a possible increase in black money transactions. This will now be discussed with the Prime Minister’s Office.