There have been changes in the Finance Bill, 2024, wherein indexation benefit has been reinstated on long term capital gains on land, building or both acquired prior to July 23, 2024. A resident individual/HUF will be liable to pay lower capital gains tax either at 20 per cent with indexation benefit or at 12.5 per cent without indexation, whichever is beneficial, only on these assets. This benefit is conferred only to resident individual/HUFs and not to non-residents.
Already the basic income exemption limit benefit is not available to a non-resident on any long-term capital gains computation, especially if that happened to be the only income. This, with non-granting of indexation benefit henceforth to non-resident individuals/HUFs, will be a double degree of discrimination in the law going forward.
Section 45 read with Section 112 is the charging provision for capital gains, the rates of which are picked from Section 112. Section 48 is the computation provision, which was the section tinkered with for abolishing indexation benefit wef July 23, 2024, as per the Finance Bill. However, the reinstatement of the indexation has been done via Section 112 and not via Section 48.
The consequential impact of this is: for the limited purpose of paying capital gains tax alone the benefit of indexation will need to be considered, and for all other purposes such as carry forward of losses/offsetting of gains/losses, aggregation of incomes and reinvestment provisions, the capital gains calculation will be considered without indexation benefit as it was originally proposed in the Finance Bill, 2024. This appears to be an inadvertent error while carrying out the amendment via Section 112 instead of Section 48.
The amended law does not address issues like what happens if an assessee had bought land prior to July 23, 2024, but undertook construction after this date or where construction is in progress. Will indexation be limited only to the land? It appears so as per law?
There might also be cases where the original construction might have been completed before July 23, 2024, but the improvement to the property might be carried out post July 23. In this case the indexation will be limited only to the original construction but not to the improvement as per the proposed law. Besides, what will be the cut-off for land or building under construction? Will it be booking, agreement, conveyance, or completion date given these falling either prior to or post July 23. In all such cases, it is better clarifications are issued soon so as to avoid complications and litigation.
The writer is a chartered accountant