In a significant relief for home buyers, the government has amended the Long-Term Capital Gains (LTCG) regime for real estate. Taxpayers can now choose between a lower tax rate of 12.5% without indexation or a higher rate of 20% with indexation for properties acquired before 23 July 2024. This enables individuals or Hindu Undivided Families (HUFs) to calculate their taxes under both schemes and pay the lesser amount. This change was implemented through an amendment to the Finance Bill 2024.

Anyone who has acquired property before July 23, 2024 -- the day the Union budget was presented -- can choose between the two regimes, the government said.

To provide relief for the taxation of immovable property, the government has amended the Union Budget proposal through a notice of amendments to the Finance (No 2) Bill, 2024, presented to the Lok Sabha. The notice includes 44 other minor changes to the bill.

“In the case of transfer of a long-term capital asset, being land or building or both, by an individual or HUF, which is acquired before the 23rd day of July 2024, the taxpayer can compute his taxes under the new scheme [@12.5% without indexation] and old scheme [@20% with indexation] and pay such tax which is lower of the two,” a person with direct knowledge of the matter said, summing the amendments.

The indexation benefit allows taxpayers to calculate gains from the sale of capital assets after adjusting for inflation. On 23 July, the budget proposed to reduce the long-term capital gains tax rate from 20% with indexation to 12.5% without indexation, under the guise of simplification. This controversial move upset the market and negatively impacted investor sentiment.

Furthermore, the securities transaction tax (STT) applicable to futures and options increased, with the rates for the sale of options in securities rising from 0.0625% to 0.1% of the option premium, and for futures from 0.0125% to 0.02%.

Noteworthy among the changes was the adjustment in the capital gains tax for shares and stocks, which increased from 10% to 12.5%. This elevation translates to a reduction in post-tax returns by 2.5%.

The change was announced hours after Opposition members in the Lok Sabha requested the finance minister to review her proposal, arguing that it adversely affected the middle class.

Raising the issue on Tuesday afternoon in the Lok Sabha during the debate on the proposals of the finance bill, several Opposition members urged Finance Minister Nirmala Sitharaman to review it for the sake of the middle class.

“Not only is the middle class being taxed, but now with this budget, the savings of the middle class have also been taxed with removal of indexation and with a rise in the short-term capital gains… Now if we talk about the people like our parents, pensioners, salaried middle-class, risk-averse people, who invested in gold, in property, in debt mutual funds, the removal of indexation has harmed them disproportionately,” said Trinamool Congress leader Mahua Moitra.

Nationalist Congress Party (Sharadchandra Pawar) leader Supriya Sule remarked that the proposal to remove indexation from long-term capital gains lacked clarity. “There is no clarity on indexation.” She explained that if someone bought a house in 2002 for ₹1 crore and sold it for ₹5 crores they would pay an LTCG of ₹34 lakh with indexation, but ₹50 lakh without indexation.

“Indexation has been done away with for ease of computation with simultaneous reduction of the rate from 20% to 12.5%, FAQ released by the Income-Tax Department had said after the budget. It also simplified the holding period. Earlier there were three holding periods for considering an asset to be a long-term capital asset. Now, there are only two holding periods -- for listed securities, it is one year, and for all other assets, it is two years, it said.

Taxpayers will continue to avail the rollover benefits on capital gains as earlier, it said. “Investment of capital gain in 54EC bonds (up to ₹50 lakh) and in other cases, the capital gain is exempt from tax, subject to certain specified conditions,” it said that day.

Niranjan Hiranandani, chairman of the Hiranandani Group, called it a significant step forward. “This relief applies to the transfer of long-term capital assets, such as land or buildings, acquired before July 23, 2024. By enabling taxpayers to choose the lower tax burden between the new and old schemes, the amendment is poised to drive investment and enhance sales across housing segments,” he said.

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