Income Tax Department claims indexation benefit removal good for most taxpayers:The changes in the rules related to Long Term Capital Gains (LTCG) tax through the new budget have created panic among property investors. Generally, people are most upset about the fact that the government has abolished the indexation benefit on property while selling it with immediate effect. Although along with this, the LTCG tax on property has also been reduced from 20 percent to 12.5 percent, yet property owners or investors feel that due to not getting the indexation benefit, they will have to pay more tax than before on selling their years old property. But now the Income Tax Department has clarified this issue through social media and claimed that the new rules will not harm most people, but will benefit them. Along with this, some hypothetical examples of tax calculation have also been given to strengthen their claim.
Income Tax Department’s clarification
The Income Tax Department has clarified the issue by posting several posts one after the other on the social media platform X. For this, it has also tried to present its side by giving hypothetical examples of tax liability on the sale of property as per the old and new rules. Overall, the Income Tax Department says that most taxpayers will not suffer any loss but will benefit while selling property due to the new rules. In its social media post, the department has written,
“Reduction in tax rate from 20% with indexation to 12.5% without indexation in real estate:
- Reducing the long term capital gains tax rate from 20% with indexation to 12.5% without indexation will benefit almost all real estate related matters.
- In the case of real estate, annual nominal returns are usually 12 to 16 percent, which is much higher than the inflation rate. On the other hand, indexation for inflation is in the range of 4-5 percent, depending on the holding period. Therefore, most taxpayers can expect huge savings in terms of tax liability.
- Some examples are also given here to clarify the difference in tax liability in both the situations.”
Budget 2024: Budget has provision of 26 thousand crores for Bihar roads, 15 thousand crores for the new capital of Andhra Pradesh
Hypothetical example of Income Tax Department
The Income Tax Department has also given some hypothetical examples to prove the new rule of LTCG tax applicable on property. In these examples, a table of hypothetical price, hypothetical annual return and hypothetical selling price after 5 years, 10 years and 15 years of a hypothetical property with a purchase price of Rs 100 has been given. Based on these hypothetical prices and returns, the Income Tax Department has also given the calculation of tax liability under the old and new rules.
✅Nominal real estate returns are generally in the region of 12-16 per cent per annum, much higher than inflation. The indexation for inflation is in the region of 4-5 per cent, depending on the period of holding. Therefore, substantial tax savings are expected to a vast majority… pic.twitter.com/gjgCqdfAV4
— Income Tax India (@IncomeTaxIndia) July 24, 2024
Also read: New Income Tax Slabs: Big change in income tax slab, check the new rates of new tax regime, how much tax will be levied on how much income now
Department’s claims based on hypothetical examples
The Income Tax Department has given some interesting claims based on its calculations based on hypothetical examples of long-term returns and gains on property. The department claims:
- “The new tax rates without indexation are beneficial in most cases. If a property is held for 5 years and its value increases by 1.7 times or more during this period, then the new rate is beneficial.
- Even if a property is held for 10 years and during this period its value increases by 2.4 times or more, the new tax rate is beneficial.
- Even if a property is bought in 2009-10 (i.e. 15 years ago) and its value increases by 4.9 times, the new tax is beneficial.”
The Income Tax Department further claimed, “It is clear from the above examples that the old tax rate is beneficial only in those cases when the return on property is less than 9-11 per cent per annum, but such low returns in real estate are unrealistic and rare.”
Also read: LTCG Tax Rule Change: How will the tax burden increase on selling property, understand the loss of ending indexation benefit with the help of calculation
Simplifying the tax structure is beneficial: Income Tax Department
The Income Tax Department has also said that if capital gains up to Rs 50 lakh are invested in 54EC bonds or for buying or building a house within the limit of Rs 10 crore, then tax will not have to be paid on it under certain conditions. The department has enumerated the benefits of the new tax provision and said that “simplifying any tax structure makes it easier to follow it, such as computation filing and record keeping. This also eliminates different rates for different asset classes.” The Income Tax Department has tried to allay people’s concerns by issuing clarification, but looking at the reactions coming on this social media post, it seems that this task will not be so easy.
