The government is looking at several options for addressing concerns regarding the real estate sector due to the indexation removal announced in the Union Budget 2024 which has made representations pour in, CNBC-TV18 wrote, citing unnamed sources. HT couldn't independently verify the information. No final decision has been made by the government on the matter, the report added.
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What is real estate indexation?
Indexation here refers to adjusting the purchase price of property for inflation. This lowers the capital gains tax liability when the property is sold because when the initial purchase price is adjusted for inflation, it is now higher, and thus, the taxable amount or profit on sale calculated will be lesser.
What happened to real estate indexation in the Union Budget 2024?
The government has now, stopped the practise of indexation for long term capital gains on real estate in the Union Budget 2024 presented by Finance Minister Nirmala Sitharaman on July 23, 2024.
This means that real estate investors cannot adjust the purchase price using indexation, and thus, have to potentially pay a higher amount in tax.
{{/usCountry}}This means that real estate investors cannot adjust the purchase price using indexation, and thus, have to potentially pay a higher amount in tax.
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However, long-term capital gains (LTCG) have also been lowered from 20% to 12.5%.
The government may prefer introducing a grandfathering clause, which would allow transactions done before July 2024 to come under the previous indexation rules, according to the report, which added that the government is even looking to allow real estate-taxpayers to choose between the old and new LTCG regime.
What is grandfathering?
Grandfathering is a provision which allows benefits to continue for transactions or investments that were done before a new law stopping the benefits was implemented.
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