Some taxpayers have voiced concerns over the government’s recent decision to eliminate
indexation benefits on long-term real estate sales. In response, Finance Minister Nirmala
Sitharaman explained in an interview with ET that critics are overlooking the broader
implications of this policy change. While long-term capital gains tax on property sales has
been reduced, the accompanying indexation benefit is no longer available.
“Yes, they are missing the bigger picture,” Sitharaman stated, adding that the Central Board
of Direct Taxes (CBDT) has released clarifications to highlight that this decision was not
taken lightly. She explained that a detailed review of various scenarios was conducted before
finalizing the new approach. Now, long-term capital gains tax on real estate has been adjusted
from 20% with indexation to a straightforward 12.5% without indexation. Indexation, which
adjusts the purchase cost of an asset for inflation, had previously offered taxpayers a means to
reduce capital gains.
Sitharaman emphasized that simplicity was a key goal in this revision. “Instead of applying
indexation selectively, we have adopted a flat 12.5% tax rate to make things simpler,” she
said. Following the Budget announcement, Finance Ministry officials have been clarifying
that this change could actually benefit many taxpayers. CBDT Chairman Ravi Agrawal
remarked, “We’ve been accustomed to the indexation system, but by looking beyond
calculations and focusing on real market behavior, this approach could prove advantageous.”
Income tax department analysis suggests that the new tax structure is favorable for properties
held at least five years, where values have risen by 1.7 times or more. For those held for a
decade, the benefit applies when values have increased by 2.4 times or higher. Properties
acquired in 2009-10 see advantages if their value has grown by approximately 4.9 times.
