Real Estate Tax Relief: Nirmala Sitharaman’s Key Updates

Finance Minister Announces Real Estate Tax Relief: Key Updates

Finance Minister Nirmala Sitharaman recently addressed Parliament, announcing crucial updates to the real estate tax regime. The Finance Minister confirmed a significant change in how long-term capital gains (LTCG) tax will be calculated for real estate transactions, providing property owners with two distinct options.

Key Changes in Long-Term Capital Gains Tax

In her address, Sitharaman confirmed that the amendment to the long-term capital gains tax will allow property owners to choose between two tax calculation methods:

1. 12.5% LTCG Rate Without Indexation:
   • This option enables taxpayers to pay a lower tax rate of 12.5% on capital gains from the sale of property. However, this rate is applied without adjusting the purchase price for inflation.
2. 20% LTCG Rate With Indexation:
   • Alternatively, taxpayers can opt for a higher tax rate of 20% but benefit from indexation. This traditional method allows adjustments to 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 lower taxable capital gains and, consequently, the tax liability.

Impact on Property Owners and the Real Estate Market

The decision aims to provide flexibility to property owners, allowing them to evaluate their financial situation and choose the tax option that best suits their needs. Sanjoo Bhadana, Founder & MD of 4S Developers, commented on the amendment, stating, “The decision provides flexibility to property owners, allowing them to carefully evaluate their financial situation and select the tax option whenever they plan to sell.”

The amendment, announced during Sitharaman’s seventh Budget presentation on July 23, 2024, includes the removal of indexation benefits for real estate sales. This change is expected to relieve property owners and stabilize the real estate market, a vital sector in the economy.

Expert Opinions

According to Mohit Jain, Managing Director of Krisumi Corporation, “The amendment offers flexibility in computing long-term capital gains (LTCG) tax, allowing taxpayers to choose between a lower rate of 12.5% without indexation or a higher 20% rate with indexation for properties acquired before July 23, 2024. This change provides much-needed relief for property owners and supports stability in the real estate market, which is a significant employment generator in the economy.”

The recent updates by Finance Minister Nirmala Sitharaman offer new opportunities for property owners to optimize their tax obligations. By providing the choice between a lower tax rate without indexation and a higher rate with indexation, the government aims to balance tax benefits and support the real estate sector’s growth.

Aakhir Tak Editor-in-Chief

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