Taxpayers to choose between lower and higher LTCG rates for pre-July 2024 property acquisitions

The government has proposed a new tax relief scheme for property owners, allowing them to choose between two long-term capital gains (LTCG) tax rates for assets acquired before July 23, 2024. This measure will apply to both immovable properties and unlisted securities.

Key Details

• Tax Options for Property Transfers:
  • 12.5% Without Indexation: Taxpayers can opt to pay a lower rate of 12.5% without adjusting for inflation (indexation).
  • 20% With Indexation: Alternatively, they can choose the traditional 20% rate with indexation benefits.
• Impact on Unlisted Securities:
  • For unlisted securities acquired before July 23, the LTCG tax rate will remain at 10%. This is a reduction from the previously proposed 12.5% in the Finance Bill.

Finance Bill Amendments

• LTCG Tax Rates:
  • Before July 23, 2024: 10% for unlisted securities and the option to choose between 12.5% or 20% for immovable properties.
  • On or After July 23, 2024: The LTCG rate will be 12.5% for unlisted securities and 20% for immovable properties with indexation.
• No Relief for Listed Shares: The new amendments do not affect listed equity shares or equity-oriented mutual funds. These will continue to be taxed under the existing rules.

Background

The proposed changes follow Finance Minister Nirmala Sitharaman’s announcement in the Union Budget on July 23, 2024. The budget removed indexation benefits for real estate investments and reduced the LTCG tax rate for properties. The decision has been influenced by representations from taxpayers and reports on the recent budget announcements.

Indexation helps adjust the purchase price of an asset for inflation, which reduces the taxable gains and therefore the tax liability. The new rules will provide taxpayers with more flexibility in managing their tax obligations based on their individual circumstances.