Indexation as announced recently (effecting home buyers/owners) is explained here in simple language in Sholay style by Helping Gabbar (Punit Sethi); humour aside- please read and know intricacies easily as useful:-
Mousi to Jai: Beta, I have got this WhatsApp message that they have restored the indexation benefit for the LTCG. Is it correct Beta?
Jai: Yes, Yes Mousi ji, Hon. FM has announced in parliament that they have restored benefits of indexation. Now in case of LTCG from the transfer of land and buildings purchased before 23rd July 2024, the tax calculated @12.5% without indexation or @20% with indexation- whichever is lower, would be the tax liability.
Mousi : Ok Beta, so all the assets purchased upto 22nd July 2024 would be eligible for indexation, right?
Jai: Aree nahi Mousi. Only land and buildings would be eligible for this indexation benefit. Other assets like your jewellery etc. would not be eligible.
Mousi: Samjhi, got it. Achha, I have a partnership with Basanti and we have purchased a land in that firm. Indexation benefit is available for this land- hai na?
Jai: Na,na, na Mousi ji. Indexation benefit has been restored only for individuals and HUFs. Properties purchased by Firms, Companies, Associations etc. are no more eligible for indexation.
Mousi: Hmmm. Okey. My son is now an NRI and he is having a non agriculture land in Ramgarh. When he will be selling his land , he would be entitled for the benefits of indexation, Theek hai na?
Jai: Ab kya kahoon Mousi, even amongst Individuals and HUFs, they are giving benefit of indexation to only residents. Non residents would not get benefit of indexation now onwards.
Mousi: Beta, ek baat aur bata do, If I sell my residential house and claim exemption from capital gains by investing in another house or in Capital Gains bonds, whether I can invest capital gains after indexation to get full exemption?
Jai: Ab aisa hai Mousi that Indexation as concept for calculation of taxable capital gain is gone. It has been brought back only for limited purposes of tax liability determination. So for exemptions u/s. 54,54B and 54EC, amount invested would be compared with gains without indexation.
Even if you have some loss after indexation, this much loss would not be allowed to be carried forward/ adjusted with other capital gains.
Mousi: Sahi hai Beta. So what you saying is that indexation would be available but only for land and buildings and not for other assets. If tax payer is NR or is a firm/company etc., then indexation would not be available. It would be used for tax calculation but can not be considered for determination of amount of loss or amount of investment to be done to get full exemption u/s. 54,54B,54EC etc.
Beta kya tumhe nahi lagta, that with so many ifs and buts, the law is more complicated now then earlier.
Jai: Kamaal hai Mousi. Aap to smajhti hi nahi- You don’t understand. They have mentioned it very clearly in Finance Bill memorandum that it is an exercise to simplify the act. This is their idea of simplification.
