The Government of India(GoI) is considering postponing the implementation of changes to the long-term capital gains (LTCG) tax indexation rules until FY26 (financial year 2025-26). This potential change could offer relief to property owners who were previously facing increased tax liabilities due to the removal of indexation benefits in the new tax rules effective from July 23, 2024.
Indexation allows adjusting the purchase price of an asset for inflation when calculating capital gains tax. This adjustment helps reduce the tax burden on assets held for a long time.
The new LTCG tax rules, implemented in July 2024, eliminated indexation benefits for property, gold, and other unlisted assets. This change led to concerns about increased tax liability for property owners.
The government is reviewing the revised LTCG regime and considering applying the indexation changes prospectively from FY26. This would give property owners more time to plan their asset sales and potentially benefit from the indexation adjustment.
The reports suggesting this possibility are based on sources and discussions within the government, but no official statement has been released.
However, there are strong indications that the government is actively considering this change. Several media outlets, including India Today and Business Today, have reported on the matter, citing sources within the Ministry of Finance. Additionally, industry bodies and tax experts have been advocating for a delay in the implementation of the indexation changes, citing concerns about their impact on the real estate market and individual taxpayers.
It is important to note that the government has been open to feedback and suggestions on the revised LTCG regime. The Finance Minister has previously stated that the government is willing to consider changes if they are deemed necessary. Therefore, it is possible that the government will make an official announcement regarding the indexation changes in the near future.
Another proposal under consideration is to offer property sellers a choice between a 20% tax rate with indexation or a 12.5% rate without indexation, as per section 112 of the Income Tax Act. However, this option might complicate the tax process.
Impact: If the government decides to postpone the indexation changes until FY26, it could provide significant relief to property owners and potentially boost the real estate market. However, the final decision is yet to be made, and it’s essential to stay updated on the latest developments from the Ministry of Finance.