India News | Majority of Taxpayers to Have Substantial Tax Savings Due to Reduction of LTCG on Real Estate: I-T

New Delhi, Jul 24 (PTI) The Income Tax department on Wednesday said '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.

Also Read | Earthquake in Maharashtra: Tremors Shake Sangli Residents, No Casualties.

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.

Also Read | Stock Market Today: Nifty, Sensex Yet to Cheer Union Budget 2024, Stock Markets Open in Red.

In a post on X, the income tax department said the nominal real estate returns are generally in the region of 12-16 per cent per annum, much higher than inflation.

"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," it said.

Giving a comparison of benefits based on the holding period of the real estate property, the I-T department 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, it said.

"From the above examples, it is clear that only where returns are low (less than about 9-11 per cent per annum) that the earlier tax rate is beneficial, but such low returns in real estate are unrealistic and rare," the I-T department said.

As per the changes brought in the 2024-25 Budget, the government has retained the indexation benefit for taxpayers on properties bought or inherited before 2001. The changes in the tax rate have been made effective from July 23, 2024.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)