Nirmala Sitharaman set to launch NPS Vatsalya scheme on Sept 18
The development is in pursuance of the announcement in the Union Budget 2024-25.
Finance Minister Nirmala Sitharaman said that the government’s decision to remove indexation benefits from real estate and lowered the long-term capital gains (LTCG) tax from 20% to 12.5% was not due to revenue consideration but due to simplification.
The government on Tuesday moved an amendment allowing long-term capital gains taxes on property purchases made before July 23, 2024, to be calculated under the new 12.5% rate without indexation and the old 20% rate with indexation and allowing taxpayers to choose the more favourable option.
“The amendment gives a choice to taxpayer to now they can calculate and see what works better for them. The current amendment ensures that there will be no additional tax burden on people,” the Finance Minister said. “We heard the people,” she added.
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“The logic of the budgetary proposal on capital gains is that it has to be simplified and to treat all asset classes equally,” the minister added.
Current amendment asset acquired before July 23 can compute tax under the old scheme with indexation or new scheme and pay the lower tax, she said, adding that amendments in budget are brought in even later so that it is representative of common people’s aspirations.
Under rhe 12.5% LTCG rate without indexation, taxpayers can pay a lower tax rate of 12.5% on the capital gains from the sale of property without adjusting the purchase price for inflation (indexation).
With the 20% LTCG rate with indexation, taxpayers toucan pay a higher tax rate of 20%, but they can adjust the property’s purchase price for inflation using the Cost Inflation Index (CII) provided by the Central Board of Direct Taxes.
This adjustment can significantly reduce the taxable capital gains and, consequently, the tax liability.
In the Union Budget, Nirmala Sitharaman announced the withdrawal of indexation benefits from real estate and lowered the long-term capital gains (LTCG) tax from 20% to 12.5%.
Indexation adjusts the purchase price of an asset for inflation, thereby reducing the gains and, ultimately, the tax liability.
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