Realty LTCG tax without indexation 'practically' beneficial for taxpayers: CBDT chairman

The removal of indexation benefits from real estate transactions will be beneficial for taxpayers when it is seen through the prism of “actual market dynamics” rather than plain mathematics, Central Board of Direct Taxes (CBDT) Chairman Ravi Agrawal said on Wednesday.

The head of the direct taxes administration in the country told news agency PTI that the department did “some calculations” in this context before the measure announced by Union Finance Minister Nirmala Sitharaman on Tuesday in Parliament.

Agrawal also underlined that the new system says there will be “less tax obligation” for a taxpayer here.

The Budget 2024-25 has reduced tax rates on capital gains earned from the sale of house properties held for the long term but has removed the benefit of indexation available to taxpayers.

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.

Over the concerns raised by a section that feels taking away indexation will affect the real estate market adversely, Agrawal asserted that “practically, in most of the cases, the new scheme would be beneficial”.

He said there were demands from various quarters and taxpayers to “simplify” the capital gains regime.

The CBDT Chairman said the intention of this Budget measure is to make this process simple as any “complicated structure brings with it disputes also”.

“Take the case of real estate, the property rates or gains have gone up in the past 10 years substantially. Now, compare your indexation with the new regime in the past 10 years. Suppose you bought a property in 2014, and you are selling it in 2024-25. The benefit of indexation would be only 1.5 times.

“So, consider if the property is some X, the index cost of the evaluation will be 1.5 times...in 10 years, it will only be going up by 1.5 times,” he noted.

Now, we (CBDT and Income-Tax department) have done some calculations and found that if the property rate has gone up by three times in 10 years, the new tax regime (as announced in the Budget) is beneficial, the CBDT chairman said.

Effectively, Agrawal said, the obligation of tax is less (in the new regime).