NEW DELHI (Reuters) – India’s lower house of parliament on Wednesday approved relaxing new property tax rules it proposed just two weeks ago, after criticism that the changes added to the financial strain on the middle class.
Finance Minister Nirmala Sitharaman, as part of the annual budget on July 23, said the long-term capital gains tax on real estate sales would be reduced to 12.5% from 20%.
However, that came with the removal of a benefit that allowed individuals to adjust property prices for inflation when calculating capital gains for tax purposes. That effectively raised the profit on each sale and hence, the tax bill.
The government will now offer taxpayers the option to choose between the new 12.5% tax rate without the inflation adjustment or the old 20% rate with inflation adjustment, Sitharaman said, seeking lawmakers’ approval for the amendment.
“We have heard the public … and introduced the tax amendment,” Sitharaman said, adding the initial aim was to simplify and standardise the tax rules.
Real estate assets are classified as long-term if held for at least 24 months. Properties purchased after July 23, 2024, will attract the new capital gains tax rate of 12.5%.
During the debate on the tax proposals, opposition members said Prime Minister Narendra Modi’s first budget since his reelection in June aimed to increase the tax burden on the middle class.
Many tax consultants had also criticised the new tax rule, arguing that eliminating inflation indexation would disproportionately affect taxpayers selling older properties acquired at lower prices.
However, the new tax options are expected to provide relief to thousands of taxpayers worried about increased tax payments on the sale of older properties, they said.
“This provides flexibility, making it advantageous to take indexation benefits where the tenure is long and capital appreciation significant,” said Parth Mehta, CMD of Paradigm Realty, a Mumbai-based real estate company.
(This story has been refiled to remove extraneous text, in paragraph 1)
(Reporting by Nikunj Ohri and Manoj Kumar; Editing by Savio D’Souza)
