India Inc Requests Phased Transition to Long Term Capital Gains Tax Regime
New Delhi: India Inc is urging the government for a phased transition to the long term capital gains (LTCG) tax regime announced in the budget for FY25. This proposal aims to eliminate indexation benefits for property, gold, and other unlisted assets.
The suggested options include a higher tax rate with indexation or a lower rate of 12.5% without indexation, along with a form of grandfathering for ancestral properties. These propositions are currently under examination at the finance ministry and are set to be deliberated upon with the Prime Minister’s Office, as per sources familiar with the matter.
A final decision on this matter is anticipated closer to the delivery of the reply to the Finance Bill in the Parliament. Industry groups are preparing to submit formal proposals to the finance ministry. An official from a leading industry lobby group stated, “We are proposing that some time be given to taxpayers for transition.”
The finance ministry has already conducted initial discussions on the concerns raised by various stakeholders, including the potential escalation of black money transactions. In the budget unveiled on July 23, the LTCG tax on property was reduced to 12.5% from 20%. Additionally, the proposed elimination of indexation for properties purchased on or after April 1, 2001 has sparked apprehensions.
The indexation benefit enables taxpayers to adjust the acquisition cost for inflation before computing capital gains, thus reducing the tax liability. The government annually issues the Cost Inflation Index (CII) for this purpose. An official from another industry body supporting a transition regime remarked, “Since the sudden transition to the new capital gains regime impacts existing properties held by taxpayers, the amendment has a retroactive impact for such taxpayers.”
As per the suggestions being discussed, the seller of a property would have the option of choosing between a 20% LTCG rate with indexation or a 12.5% LTCG rate without this facility. Sudhir Kapadia, senior advisor at EY, endorsed this proposition, saying, “As per tax policy diligently followed by the current government, any drastic change in regime has been made in a gradual manner, by providing options to taxpayers to choose between the old regime and new regime.”
Furthermore, he highlighted the existing tax regime choices for domestic companies and individual taxpayers as examples, emphasizing the need to offer options for taxpayers to select the most beneficial regime according to their circumstances.
The industry is calling for a balanced approach to be adopted, which considers the interests of taxpayers and allows for a smooth transition to the new LTCG tax regime. Through these concerted efforts, India Inc aims to facilitate a constructive dialogue with the government to address concerns and ensure a fair and equitable tax framework for all stakeholders.
