Property tax relief

THE government’s decision to restore the indexation benefit for long-term capital gains (LTCG) on property sales marks a pragmatic reversal in response to public backlash. The Union Budget’s proposal to eliminate the indexation benefit while reducing the LTCG tax rate to 12.5 per cent aimed to simplify the tax regime. However, it failed to account for the nuanced financial impacts on property owners, especially those with long-held assets. Indexation adjusts the purchase price of an asset to account for inflation, ensuring taxpayers are not disproportionately taxed on nominal gains. Without it, taxpayers could face substantial tax burdens, misrepresenting the real value of their gains.

The government’s revised stance offers a choice: pay 20 per cent LTCG tax with the indexation benefit or 12.5 per cent without it, applicable to properties acquired before July 23, 2024. This flexibility not only addresses immediate financial concerns but also reflects a more thoughtful approach to tax policy, acknowledging the diverse economic realities faced by people. However, properties purchased after this cut-off date will only be eligible for the 12.5 per cent rate without indexation. There are fears that the new regime might increase secondary market sales as investors may not retain their properties for too long.

Ultimately, this rollback underscores the importance of nuanced policy-making that considers both economic principles and public sentiment. The restored indexation benefit is a welcome relief for many, reaffirming the government’s ability to adapt and refine its fiscal policies in the face of legitimate public concerns.