While tax rates on capital gains earned from the sale of house properties held for the long term has been reduced, the benefit of indexation available to taxpayers has now been withdrawn.
“Yes, definitely (missing the larger picture). After my budget presentation, the Central Board of Direct Taxes has been putting out clarifications to explain that this decision hasn’t been taken just like that. An exhaustive exercise to analyse different cases was undertaken before the decision was arrived at,” Sitharaman told ET while explaining the rationale behind the move.
The LTCG (long-term capital gains) has been reduced from 20 per cent with indexation benefit to 12.5 per cent without indexation for the real estate sector. Indexation is a mechanism to adjust the purchase price of an investment like a house to reflect the effect of inflation on such assets.
“If you want simplification–not in some you want indexation some others you do not want. Here also without any exemptions, without ifs and buts, we have come up with a 12.5% figure as a fair rate of taxation,” she said.Through post-Budget interview, Finance Ministry officials have been attempting to explain that taxpayers would ‘practically’ gain from the move.”We have been living with this indexation regime for long and have got used to it, and it has come into our psyche. But, if we actually start analysing it, not from the mathematics point of view, but from the actual market dynamics, then one would find that this scheme is better,” CBDT Chairman Ravi Agrawal told PTI in an interview.
As per an analysis by the income tax department, the new regime is beneficial for property held for 5 years when the prices have appreciated 1.7 times or more. For property held for 10 years, it is beneficial when the value has increased to 2.4 times or more. For property purchased in 2009-10, if value has increased to 4.9 times or more, it is beneficial.
(With PTI inputs)