One of the benefits of simplification of any tax structure is that it removes differential rates for various classes of assets, Finance Ministry sources said, responding to feedback from the public on the changes in long-term capital gains (LTCG) tax announced by Union Finance Minister Nirmala Sitharaman in her Budget speech on Tuesday.
The reduction in long-term capital gains tax rate from 20 per cent with indexation to 12.5 per cent without indexation for real estate will benefit in almost all cases, sources said.
Nominal real estate returns are generally in the region of 12-16 per cent a year, much higher than inflation, sources said, adding the indexation for inflation is in the region of 4-5 per cent, depending on the period of holding.
So, substantial tax savings among a vast majority of such taxpayers are expected, they said. The new tax rate without indexation is beneficial in most cases, the Finance Ministry sources added.
For property held for five years, the new tax regime is beneficial when the property appreciates at least 1.7 times or more. For property held for 10 years, it will be beneficial when the value has increased to 2.4 times or more. And for property purchased in 2009-10, if value has increased to 4.9 times or more, it (new tax regime) is beneficial.
It is only when the returns are low - less than 9-11 per cent a year - that the earlier tax rate is beneficial, sources said. But such low returns in real estate are unrealistic and rare, which account for less than 10 per cent of cases, they said.
Sources said it is noteworthy that on investment of capital gain in Section 54EC bonds (up to Rs 50 lakh) or in buying or building a house (up to Rs 10 crore), the capital gain is exempt from tax, subject to certain specified conditions.
Section 54EC bonds or capital gains bonds allow individuals to save on LTCG taxes incurred from the sale of property or assets.
The simplification of any tax structure has benefits of ease of compliance viz computation filing, and maintenance of records, sources said, adding this also removes the differential rates for various classes of assets.
The exemption limit of LTCG tax for certain financial assets has also been increased from Rs 1 lakh to Rs 1.25 lakh a year.
In her record seventh Union Budget, Ms Sitharaman announced key employment schemes and also revised the tax structure in the new tax regime, while the slabs in the old regime remained unchanged. Prime Minister Narendra Modi congratulated her for a balanced Budget.
Featured Video Of The Day
Nirmala Sitharaman Proposes Amendments To LTCG Tax On Immovable Properties Relief For Homeowners As Centre Modifies Long Term Capital Gains Tax Tax Body Clarifies Acquisition Cost Of Real Estate Bought Before 2001 For LTCG Maharashtra Ex Minister Baba Siddique Shot Dead Near Son's Office In Mumbai Airline CEO Saves Stranded US Woman In Qatar After Coffee Shop Encounter Ex-Professor GN Saibaba Dies Months After Acquittal In Maoist Links Case Baba Siddique Shooters Claim They Were Hired By Bishnoi Gang: Sources "Champion Of India-Israel Friendship": Netanyahu Condoles Ratan Tata's Death "Act Against Evildoers": BJP MLA Distributes Swords Among Girls In Bihar Track Latest News Live on NDTV.com and get news updates from India and around the world.