The Finance (No. 2) Bill, 2024 was presented by the Union Finance Minister, Nirmala Sitharaman on 23 July 2024. While moving the Bill for approval by the Lok Sabha on 7 August 2024, the Finance Minister introduced amendments to FB (No, 2) 2024 (Amended Bill).
The amendments are generally intended to address certain ambiguities/uncertainties arising from the proposals as contained in the Bill.
The indexation benefit was restored for the limited purpose of computing long term capital gains tax liability on sale of immovable property acquired before 23 July, 2024 by resident individual or Hindu Undivided Family (HUF).
Currently, provisions of the Indian Tax Laws (ITL) allow indexation benefit on cost of acquisition of immovable property being land or building or both for computing long term capital gains (LTCG). The FB (No. 2) 2024 proposed to withdraw the indexation benefit across all categories of long term assets including immovable properties. Correspondingly, the rate of LTCG tax on assets was also proposed to be reduced from 20% to 12.5% (plus applicable surcharge and cess).
With the removal of indexation, where transfer of immovable property takes place on or after 23 July 2024, in certain cases where the price rise was limited as compared to inflation, the taxpayers faced increased tax liability as compared to the old regime of 20% tax rate with indexation.
In order to grant relief from such excess tax liability arising to resident Individual and HUF (specified taxpayers), the Amended Bill has proposed to restore the benefit of indexation while computing tax payable on long term capital gain arising on transfer of land or building or both acquired before 23 July 2024. The tax payable by specified taxpayers would be lower of the following:
- 12.5% of capital gains without giving effect to indexation; or
- 20% of capital gains after considering the benefit of
indexation
It is significant to note that the above relief is only for the purposes of capping of LTCG tax liability to 20% with indexation. For all other purposes like aggregation, set-off, carry forward and roll over exemption, the LTCG needs to be computed without indexation benefit. Furthermore, similar relief is not available to non-resident individuals or HUFs as also to resident or non-resident firm, limited liability partnership (LLP), companies, etc.
For better understanding of the pros and cons of removal of indexation click here.
To read more about the finance bill (No. 2) 2024 introduced in Lok Sabha Click Here.
