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08-08-2024
Bureau Report + Agencies
NEW DELHI: I ndia’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 and 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 standardize 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 criticized 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.
Earlier, Indian Prime Minister Narendra Modi, smarting from setbacks in the April-June general election, is now being berated for last week’s budget by the country’s swing voters, the middle class, putting his party on the defensive ahead of polls in three states and a federal territory.
The budget raised taxes on gains from retail investments in financial markets, left income tax rates untouched despite talk there would be relief and removed some real estate tax benefits, leading to outrage among the middle class, which makes up about 30% of India’s 1.42 billion people.
Graphics artist Namdev Katkar said he would like the opposition to replace the alliance led by Modi’s Bharatiya Janata Party (BJP) in his state, Maharashtra, one of the four going to the polls. India’s financial capital, Mumbai, is in Maharashtra.
“I will have to pay more taxes for my income and this is like losing our hard-earned money,” said Katkar, who said he invests his savings in the stock market. “I am not yet sure whom to vote for but this time it will not be the BJP.”
While any possible losses in the regional polls will not affect Modi’s position as prime minister, they would add to questions about his leadership and reputation of invincibility after the BJP failed to clinch a majority in the general election to the lower house of parliament.
“If the BJP loses in the regional elections, it will impact his leadership quite adversely,” said New Delhi-based political commentator Arati Jerath. “There is already a lot of restlessness within the party at the fact that in the last election … they could not even get the majority.”
