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Amid the confusion over the government eliminating the indexation benefit on calculating long-term capital gains tax (LTCG) on property which led to real estate stocks nosediving, some experts tried to assuage people, saying even in property, new tax rate at 12.5 per cent (without indexation) would be better than previous regime (20 per cent with indexation) if property is held longer as an asset than used just to rotate money every few years.  

The LTCG on property sales has been reduced from 20 per cent to 12.5 per cent. However, the Union Budget’s fine print revealed that indexation benefits on real estate have been removed, along with gold and other unlisted asset classes.

"With the rationalisation of rate to 12.5 per cent, indexation available under the second proviso to Section 48 is proposed to be removed for calculation of any long-term capital gains, which is presently available for property, gold and other unlisted assets. This will ease computation of capital gains for the taxpayer and the tax administration," the budget document read.

Indexation adjusts the purchase price of an asset for inflation, reducing taxable profits and tax liabilities. Without this adjustment, taxpayers may face increased taxes despite the lower LTCG rate.

According to experts, the whole idea is to simplify the capital gains tax regime. “Interestingly, the rate for LTCG for other securities (non-listed) has reduced from 20 per cent (with indexation) to 12.5 per cent. This will be a big impetus to the sale of immovable properties as long-term capital gains tax would significantly reduce," Harsh Bhuta, Partner, Bhuta Shah and Co LLP, told IANS.

Finance Minister Nirmala Sitharaman said the government wants to simplify the approach to taxation, especially for capital gains.

"The average taxation has come down. When we say it is 12.5 per cent, it is because we have calculated it for each of the different classes. We have brought it down to 12.5 per cent, which is the lowest in several years, encouraging investment in the market," she said.

According to experts, the taxation of capital gains has undergone significant streamlining in the Union Budget 2024 with respect to holding period and tax rates. There will only be two holding periods -- 12 months (for listed securities) and 24 months (all other securities) to determine short-term and long-term capital gains. Thus, the holding period for bonds and debt mutual funds for being classified as long-term has been reduced from 36 months to 24 months.