Through the Finance Act, 2024, the government increased the Tax Rate on Long Term Capital Gains (LTCG) from 10% to 12.5%. Earlier, the Tax on LTCG was charged @10% without indexation benefits and @20% with indexation benefits. However, what’s more concerning is the removal of Indexation Benefit on LTCG, especially in case of Real Estate Transactions. The sudden removal of Indexation Benefit on LTCG and increase in Tax Rate raised a lot of concerns amongst the Taxpayers.

The Government has introduced certain Amendments in LTCG Taxation in order to ease taxation and provide relief to the existing property holders. Let’s understand the nuances of the amendment and what is the relief provided by the government.

Effect of Changes in Grandfathering Rules for Long Term Capital Gain

Indexation benefit was crucial for the Long-Term Capital Gains. Through indexation, the purchase Cost of the asset was adjusted for inflation, allowing the calculation of Inflation and, thus, adjusted the Actual Gain on the Sale of Property.

The recent changes in Long Term Capital Gain Taxation has significantly impacted the tax liability. For better understanding of the new Amendment the same is explained with a simple example:

PARTICULARS	DETAILS OF PROPERTY
Sale Price of Property	Rs. 4.5 crores
Sale Year	May 2024 (CII 363)
Purchase Price of the Property	1 crore
Purchase Year	Sept 2001 (CII 100)
TREATMENT	BEFORE AMENDMENT	AFTER AMENDMENT
Indexed Cost of Acquisition	1 crore x 363 / 100 = 3.63 crores	NA
Capital Gain Income	Rs. 4.50 crores – 3.63 crore = Rs. 87 lakhs	Rs. 4.50 crores – 1 crore = Rs. 3.5 crore
Tax Rate Applicable	20%	12.5%
TAX LIABILITY	RS. 17.4 LAKHS	43.75 LAKHS

Therefore, as per earlier provisions of Indexation the Tax Liability would have been just Rs. 17.4 lakhs while after amendment, the tax liability raised to a whooping amount of Rs. 43.75 lakhs.

Grandfathering Clause in Long Term Capital Gains

The government decided to bring grandfathering clause after deliberation on the difficulties being caused to the Property Buyers and Sellers. As per the grandfathering clause, those people who have bought property before 23^rd July 2024 can calculate their Tax Liability either through the Old Scheme or New Scheme at their option. Therefore, such taxpayers can now either opt to:

• Calculate the Tax on Long Term Capital Gains @20% after availing of Indexation Benefits (i.e. provisions before amendment) OR
• Calculate the Tax on Long Term Capital Gains @12.5% without availing of indexation benefits (i.e. provisions after amendment).

This will ensure that the people who already own property as on the date of this amendment are not adversely affected and can choose to either continue with the Earlier Provisions or choose the New Provision whichever may be beneficial. For more such useful information, feel free to contact the ASC Group.

Also Read "No Rebate Under Section 87A of Income Tax Act on Capital Gain"