Capital Gain Indexation Relief – Option proposed for properties acquired before 23/07/2024

Capital Gain Indexation Relief – Option of indexation on sale of properties to be incorporated in Finance Bill 2024

Government seeks to provide capital gain indexation relief for computation of capital gain tax in case of sale of properties. List of Amendments proposed to the Finance Bill 2024 include proposal to provide the taxpayers an option to choose between

(a) LTCG tax @ flat 12.5% without the option of Indexation, or

(b) LTCG tax @ flat 20% without the option of Indexation for properties acquired before 23/07/2024.

In Indexation, the taxpayer gets the benefit of Cost Inflation index which is used to calculate indexed cost of the asset to increase the purchase cost to adjust the effect of inflation. Cost Inflation Index has been defined in section 48 of the Income Tax Act 1961 as the Index which the Central Government may notify from time to time having regard to seventy five percent of average risk in the Consumer Price Index.  CBDT has notified “363” as Cost Inflation Index for FY 2024-25 meaning that a property that is purchased in FY 2001-02 or before shall be multiplied by 3.63 times to get the indexed cost.

It is notable that Government was severely criticised as the Finance Bill 2024 (Union Budget 2024) had proposed to remove the indexation available under section 48  by providing flat 12.5% tax rate on long-term capital gains.

However, rate of Long Term Capital Gain tax on properties purchased on or after 23/07/2024 shall remain to be flat 12.5% with no benefit of Indexation of costs.

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• Claim of Leave Encashment exemption u/s 10(10AA)(ii) dismissed beyond Rs. 3 lakhs