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The Income Tax (IT) department has said that 'substantial tax savings' are expected for a vast majority of taxpayers due to reduction in the long term capital gains tax (LTCG) rate in the real estate sector. The Budget has reduced tax rates on capital gains earned from sale of house properties held for long term, but has removed the indexation benefit available to taxpayers. 

The I-T department noted that the LTCG has been reduced from 20 per cent with indexation benefit to 12.5 per cent without indexation for the real estate sector. The indexation benefit allowed taxpayers to compute gains arising out of sale of capital assets after adjusting inflation. It said the indexation for inflation is in the region of 4-5 per cent, depending on the period of holding. Therefore, substantial tax savings are expected to a vast majority of such taxpayers. 

Giving a comparison of benefits based on the holding period of the real estate property, it said the new tax rate without indexation is beneficial in most cases. For property held for five years, the new regime is beneficial when property has appreciated 1.7 times or more, while for a property held for 10 years, it is beneficial when the value has increased 2.4 times or more. For a property purchased in 2009-10, if value has increased to 4.9 times or more, it is beneficial.