Budget 2024: Finance Minister Nirmala Sitharaman Assures Tax Benefits Despite Indexation Withdrawal

Budget 2024: Finance Minister Nirmala Sitharaman Assures Tax Benefits Under New Capital Gains Tax Regime Despite Withdrawal of Indexation for Property Investments

Finance Minister Nirmala Sitharaman has provided a confident outlook on the new capital gains tax structure introduced in Budget 2024. Despite the removal of the indexation benefit for property investments, Sitharaman assured that most taxpayers will benefit under the revised system. She emphasized that the decision to overhaul the tax framework was made after thorough deliberation and analysis.

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Sitharaman defended the changes, highlighting that the new capital gains tax rates will be advantageous for the majority. “This notion that taxpayers will be disadvantaged is unfounded. In nearly all instances, individuals will see a reduced tax burden under the new regime,” she told The Times of India. The revised policy reduces the long-term capital gains tax on property and gold from 20% to 12.5%, albeit with the removal of the inflation adjustment benefit. However, properties purchased before 2001 will still benefit from indexation.

The Finance Minister explained that the primary goal of these amendments is to simplify the tax system and ensure uniform treatment across different asset classes. She underscored that the budget continues the trajectory set by the interim budget and reiterated the government’s commitment to fulfill promises made during the bifurcation of Andhra Pradesh. Sitharaman also addressed concerns about flood relief in Bihar, noting the significant challenges posed by Kosi flooding.

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Additionally, Sitharaman responded to criticisms from the Opposition, accusing them of perpetuating misleading narratives to sway public opinion. She also discussed the new voluntary skilling program through internships, which she noted had been developed in consultation with industry bodies like CII and Ficci. This initiative aims to prepare industry-ready candidates, potentially enhancing employment prospects.

Revenue Secretary Sanjay Malhotra supported the Finance Minister’s statements, affirming that the benefits of reinvesting capital gains in new properties or parking funds in tax-exempt 54EC bonds remain unchanged. He acknowledged that the government might experience a revenue shortfall due to the beneficial nature of the new tax structure for most taxpayers.

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According to calculations released by the Central Board of Direct Taxes, the revised tax regime is expected to favor a vast majority of taxpayers. For properties that have appreciated significantly, such as those doubling in value over ten years or more, the new tax structure proves advantageous compared to the previous system. Malhotra also pointed out that only in rare cases, where returns are exceptionally low, would the previous tax rate be more beneficial.

In summary, Finance Minister Sitharaman’s remarks reflect a strong belief in the advantages of the new capital gains tax structure, aiming to simplify taxation and provide broader benefits despite the withdrawal of indexation benefits.

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