Facing a backlash over changes to the property transaction taxation, the FM has given some concessions to homeowners

Bowing to the popular pressure and critiques from MPs within the NDA coalition, the Central Government has relented to grant some relief for property transactions. Finance Minister Nirmala Sitharaman announced in the budget that the tax on long-term capital gains was reduced from 20% with indexation benefits to 12.5% but without indexation benefits. However, following significant opposition, an amendment is being made to The Finance Bill, 2024. For the transfer of a long-term capital asset such as land or a building acquired before July 23, 2024, the taxpayer can now choose to calculate their tax either at 12.5% without indexation under the new scheme or at 20% with indexation under the old scheme and pay whichever amount is lower. Indexation adjusts purchase price for inflation, reducing tax liability on gains from investments like debt funds. The government eliminated indexation benefits on long-term capital gains, increasing taxable gains. It prevents inflation from eroding returns on long-term investments. This adjustment marks a significant reversal from the government's firm stance on the issue after the Budget.  

The ministry officials had argued that the new tax rate structure, with a lower tax rate minus the indexation benefits, would benefit people in almost all cases. However, the industry experts had different opinions. Industry bodies had sought to rethink the proposal, observing that the removal of indexation benefits amounted to a retrospective tax change for those who had bought properties earlier. They pointed out that this would particularly hurt those who had invested in assets that had delivered lesser appreciation in value over the years. It was widely feared that the removal of indexation benefits on long-term capital gains would slow down property transactions in the Mumbai real estate market, and the real estate engine of the country and could have cascading effects throughout the country. Besides, several MPs also urged the Government to reconsider the proposal. During the debate on the Finance Bill in the Lok Sabha, TDP MP Lavu Sri Krishna Devarayalu echoed the concerns of other MPs, emphasising that this issue involves taxpayers’ hard-earned money and impacts middle-class people the most. He noted that the middle class views real estate as a safe investment and and so should be protected. Indeed he had a point, as the middle-class is facing the pinch of price rise and rising unemployment. If their small investments and savings are wiped off they would have nothing to fall back upon. Providing taxpayers with the option to choose between the two tax regimes would address some of their concerns. Thankfully the finance minister yielded to allow for the second option. This would indeed give some relief to small and middle-class homeowners, providing a more balanced approach to long-term capital gains taxation in the real estate sector.