In response to concerns over the removal of indexation benefits for long-term capital gains (LTCG) tax, the Ministry of Finance clarified that the Finance (No.2) Act, 2024, has simplified and rationalized the taxation of capital gains. Holding periods are now uniform: one year for listed assets and two years for others. Additionally, the general LTCG tax rate has been reduced from 20% to 12.5%, while roll-over benefits remain intact. These measures aim to ease compliance, encourage investments, and reduce the tax burden for most taxpayers.
For properties (land or buildings) acquired before July 23, 2024, resident individuals or HUFs can opt for the more beneficial tax regime—either the new 12.5% rate without indexation or the earlier indexed rate—ensuring no increased tax liability due to the change. This provision provides relief to domestic investors in real estate.
The government asserts that these reforms will promote market-driven investment choices, particularly in the real estate sector, while simplifying capital gains calculations. Questions regarding potential discouragement of domestic investments or mitigating measures for investors were deemed unnecessary in light of the reduced rates and simplified tax regime.
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
RAJYA SABHA
UNSTARRED QUESTION NO. 2472
ANSWERED ON 17.12.2024
REMOVAL OF INDEXATION ON LONG TERM CAPITAL GAINS TAX
2472. SHRI TIRUCHI SIVA:
Will the Minister of FINANCE be pleased to state:
a. whether the removal of the indexation benefit on long-term Capital Gains tax will discourage domestic investments, particularly in real estate and long-term assets due to increased tax burden;
b. whether any steps are being considered to mitigate the negative impact on domestic investors, especially in light of substantial Foreign Institutional Investors (FIIs) outflow from the country; and
c. if so, the details thereof, if not, the reasons therefor?
ANSWER
THE MINISTER OF STATE IN THE MINISTRY OF FINANCE
(SHRI PANKAJ CHAUDHARY)
(a) Vide Finance (No.2) Act, 2024, the taxation of capital gains has been rationalized and simplified. The Holding period has been simplified for all assets. There are two holding period now, 1 year for listed assets and two years for others. Rates have been rationalized and made uniform for majority of assets. The general rate of 20 percent for taxation of long-term capital gains has been reduced to 12.5 percent. Roll over benefits have been retained.
These initiatives have ensured a simplified capital gains regime and ease of computing capital gains for assessees, and more rationalized, market-driven choice of instruments for investment.
The above initiatives have resulted in benefit to majority of taxpayers particularly because the rate has been substantially reduced to 12.5% under section 112 of the Income-tax Act, 1961. Therefore, the rationalization exercise is expected to reduce the tax burden and thereby encourage investment in real estate sector.
In cases where the property is land or building or both, which is acquired before the 23rd day of July, 2024, substantial relief has also been provided by way of option to a resident individual/HUF taxpayer. In respect of such properties, where the income-tax computed at the new rate, i.e. at 12.5% without indexation, exceeds the income-tax computed in accordance with the provisions of the Act as they stood immediately prior to such amendment, such excess shall be ignored. This has the effect of allowing an resident Individual/Hindu Undivided Family (HUF) an option to pay tax on long-term capital gains on land or building or both, at such rate which is more beneficial to the taxpayer in respect of earlier capital gains regime and the new capital gains regime.
Thus, it would not be correct to state that the simplified capital gains tax regime would increase the tax burden on the tax-payer, or have any negative impact on domestic investors.
(b) & (c) Does not arise in view of reply in respect of (a).
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