Home Top stories LTCG tax: Higher tax rate with indexation benefits on cards?

LTCG tax: Higher tax rate with indexation benefits on cards?

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LTCG tax: Higher tax rate with indexation benefits on cards?
LTCG tax: Higher tax rate with indexation benefits on cards?

Budget 2024

capital gains tax changes: The Narendra

Modi government

is considering suggestions for tweaks in the new

long term capital gains tax

regime that was announced by FM

Nirmala Sitharaman

in Union Budget 2024.
The July 23 budget reduced the

LTCG tax on property

from 20% to 12.5%. The indexation benefit, which allowed taxpayers to adjust the acquisition cost for inflation before calculating capital gains and thus reduce their tax liability, is proposed to be eliminated for properties purchased on or after April 1, 2001.

The government publishes the Cost Inflation Index (CII) annually for this calculation.
India Inc is appealing to the government for a gradual shift to the long-term capital gains tax regime proposed in the FY25 budget, which aims to eliminate indexation benefits for property, gold, and other unlisted assets.

Gradual Change in LTCG Regime?

Gradual Change in LTCG Regime?

According to an ET report by Deepshikha Sikarwar, the industry is suggesting alternatives such as a higher tax rate with indexation or a lower rate of 12.5% without indexation, as well as some form of grandfathering for ancestral properties.
The finance ministry is currently reviewing these proposals and will discuss them with the Prime Minister’s Office. The final decision will be made closer to the date when the Finance Bill reply is to be presented in Parliament, the reports said.

Industry groups are expected to submit formal proposals to the finance ministry in the near future. “We are proposing that some time be given to taxpayers for transition,” said an official with a leading industry lobby group.
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The finance ministry has already conducted one round of discussions regarding the concerns raised by various stakeholders about the move, including the potential increase in black money transactions.
“Since the sudden transition to a new capital gains regime impacts existing properties held by taxpayers, the amendment has a retroactive impact for such taxpayers,” said an official with another industry body supporting a transition regime.
The proposed suggestions include giving the seller of a property the option of either a 20% LTCG rate with indexation or a 12.5% LTCG rate without that benefit.
“As per tax policy diligently followed by the current government, any drastic change in regime has been made in a gradual manner, by providing options to taxpayers to choose between the old regime and new regime,” said Sudhir Kapadia, senior advisor at EY, supporting the suggestion.
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He cited examples such as domestic companies having the choice between a concessional 22% tax rate under Section 115 BAA without incentives and deductions, or the normal 30% tax rate after claiming permitted tax incentives and deductions, as well as individual taxpayers having the choice between two separate tax regimes—one with deductions and the other without. “Such an option existed in Income Tax Section 112 since AY (assessment year) 2000-1 for listed securities (other than units),” he pointed out.

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