Nirmala Sitharaman on Wednesday moved amendments to the long-term capital gains tax provisions, proposed in the finance bill, for property including grandfathering and an option to choose a regime with lower tax impact.
Here is a detailed article about the reintroduced indexation on property, which has brought some relief to home and property owners. However, there are certain fine print details that need to be carefully considered. This article will delve into the key points of the reintroduced indexation and its implications.
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Indexation Benefit Eligibility –
The indexation benefit is available to individuals and Hindu Undivided Families ( HUFs ) who purchased properties before July 23rd. Companies and Non-Resident Indians ( NRIs ) are excluded from availing this benefit.
Option for Taxpayers
Taxpayers have the choice between two options –
Option 1: Claim indexation benefit and pay a 20% LTCG tax.
Option 2: Opt out of indexation and pay a 12.5% LTCG tax.
Loss Set-off Restriction
It is important to note that the reintroduced indexation is applicable only for gains made on a property. Any losses incurred after calculating indexation cannot be offset against other income.
Example:
Mr. A purchased a house in 2015 for Rs. 50 lakh and sold it in August 2024 for Rs. 70 lakh.
Under Option 1 (with indexation), Mr. A incurs a capital loss of Rs. 1.45 lakh but pays no tax.
Under Option 2 (without indexation), Mr. A has a capital gain of Rs. 20 lakh and needs to pay a tax of Rs. 2.5 lakh.
In this case, Mr. A cannot set off the Rs. 1.45 lakh loss. However, he can choose Option 1 to avoid paying the Rs. 2.5 lakh tax.
Get a Copy of Bharat’s Income Tax Act, Click here
The reintroduced indexation is a welcome move for individuals and HUFs who bought property before July 23rd. Taxpayers have the option to choose between indexation with a 20% LTCG tax or a 12.5% tax without indexation.
While the reintroduction of indexation is a positive development for eligible taxpayers, it’s crucial to understand the fine print. The restriction on loss set-off and the exclusion of companies and NRIs are important factors to consider when making tax planning decisions.
Get a Copy of Bharat’s Income Tax Act, Click here
Notably, the loss incurred after calculating with indexation cannot be set off against other income. Companies and NRIs are excluded from availing this benefit. Taxpayers should carefully evaluate their individual circumstances and consult with a tax professional to determine the most advantageous option.
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