Indexation Benefits: FM Sitharaman Says Critics are Missing the Bigger Picture
Some taxpayers are unhappy with the Modi government’s decision to remove indexation benefits on real estate sales. However, Finance Minister Nirmala Sitharaman believes these critics are not seeing the bigger picture. She announced this change in the Union Budget 2024.
Previously, people selling long-term property could reduce their capital gains tax using indexation. This adjusts the purchase price to account for inflation. However, the new rule has removed this benefit but lowered the long-term capital gains (LTCG) tax rate from 20% to 12.5%.
Sitharaman explained in an interview that a lot of thought went into this decision. The Central Board of Direct Taxes (CBDT) has also been clarifying the rationale behind this change. They analyzed various cases before making this decision. Sitharaman emphasized that this new system simplifies the tax process. It eliminates the need for different rules for different situations.
Indexation was a way to adjust the purchase price of the house to account for inflation. This reduced taxable gain when the property was sold. With the new rule, there’s no need for such calculations. The flat 12.5% tax rate applies to all. This makes it straightforward and fair.
Finance Ministry officials are working to explain how this change benefits taxpayers. CBDT Chairman Ravi Agrawal pointed out that while people have become used to the old indexation system. The new rule is better when considering market dynamics, not just math.
The income tax department’s analysis supports this view. They found that the new system is beneficial for properties held for five years. If their value has increased by 1.7 times or more. For properties held for ten years, it’s beneficial if the value has gone up by 2.4 times, or more. Specifically for properties bought in 2009-10. If the value has increased by 4.9 times, the new rule is advantageous.
In summary, while the removal of indexation benefits might seem like a loss, reduced tax rate and simplified process aim to make things fairer and easier for everyone. The Finance Ministry believes this change will benefit many taxpayers in the long run. Even though it might take time for everyone to see the advantages.
