Union finance minister Nirmala Sitharaman on Wednesday formally amended a controversial budget proposal to remove indexation for computing long-term capital gains (LTCG) tax by giving an option to individual taxpayers to choose between the old regime of 20% levy with indexation and the new system of 12.5% tax without indexation.
While replying to questions raised by members of parliament (MPs) in the Lok Sabha on the Finance Bill (No 2) of 2024 that contained tax proposals announced in the budget on July 23, Sitharaman assured the members that she would take up the issue of withdrawing Goods and Services Tax on the life and the medical insurance in the GST Council. She, however, said that states have two-thirds vote in the apex federal body on indirect tax, hence they should raise the issue in the council rather than Parliament.
Giving latest data and details, FM rejected the Opposition’s allegation that the government was putting the tax burden on the common man, particularly the middle class, while sparing the corporate firms. She said that besides corporate income tax, proprietors of the companies pay tax on the dividend income at a higher rate. “In 2020, we started taxing it at the hands of the shareholders at the applicable rate. This effectively meant that the richer shareholders will pay tax on dividend at 39%. Whereas in contrast, small and middle-income taxpayers will pay tax on dividends at even less than 10%,” she said.
Read Here: FM Nirmala Sitharaman announces amendment to LTCG tax proposal, offers new options
Speaking about the amendment on the budget proposal related to LTCG, she said the government decided to amend after getting feedback from citizens. “We hear the public. This is a practice Hon’ble Prime Minister Modi has brought in the budget-making process,” she told MPs. She said that the purpose of removing indexation is to make the law simpler and treat it also at par with the other asset class.
When the House, particularly the Opposition members, claimed a victory for getting the amendment, the finance minister told the Chair: “Prime Minister also represents the people. We all represent the people… Sir, [I’m] very happy to know the Opposition wants to own it up now.” After a two-day discussion, Lok Sabha passed the money bill along with the amendment.
Sitharaman said the amendment gave “a fair option and gives the choice” to the property holder who is selling it. Replying to the criticism from the Opposition that she had to amend her budget proposal, she said, “Yes because I’ve heard the people who want some things to be changed. We have the courage and conviction to change it.”
The current amendment is for land and building assets acquired by individuals and Hindu Undivided Family (HuF) before July 23, 2024. “It stipulates that in the case of transfer of long-term capital asset, being land or building or both. By an individual or HUF. Which is acquired before 23rd July 2024. The taxpayer can compute his taxes under the new scheme, which is 12.5% without indexation, and the old scheme 20% with indexation, and pays such tax which is the lower of the two,” she said.
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“Not only we are coming up with an option [but] we are also saying calculate under both and tell us whichever is the lower. You pay tax on that. So, we have given an option. Sir, this ensures that no one faces additional tax burden due to this change,” she added.
Government officials and tax experts said that the benefit of the option is not available to corporate firms. Dhruv Agarwala, Group CEO at Housing.com & Proptiger.com, said the move is “a significant step forward for individual tax payers and HUFs, excluding NRIs and corporations. By ending the confusion and speculations from the Budget announcement, this move prevents potential negative impacts on market sentiment and growth in India’s second-largest employment-generating sector.”
“Additionally, while this benefit won’t apply to future transactions, it gives taxpayers more time to plan the sale of their assets to maximise benefits, further boosting investment across housing segments,” he added.
Participating in the two-day long debate on tax proposals mooted in the Finance Bill for 2024-25, most of the members belonging to opposition parties criticised tax proposals as anti-poor, anti-middle class and pro corporates.
Read Here: Sitharaman counters Opposition’s GST claims on health insurance, mentions Gadkari’s letter
Speaking on the bill on Wednesday, Shiromani Akali Dal leader (SAD) and Member of Parliament Harsimrat Kaur Badal called it “tax trap bill” saying that it taxes all 140-crore people and “spare” none, but is “kind to corporates”. Most of MPs from opposition parties asked the government to reduce tax burden on the farmer by removing GST on farming implements and remove 18% GST on life and medical insurance.
Initiating the debate on Tuesday afternoon, Congress leader Amar Singh criticised the government for ignoring the middle class and sparing the rich. “If we see this budget that has been proposed by the government, it seems that the central government wants to take away every single rupee from the salaried class, the middle class, and the common man in some or other forms of taxes but spare the rich of this country,” he said questioning why individuals income tax rose from 2.1% of gross domestic product to 3.5% in the last 10 years while corporate tax fell from 3.4% to 3.1% of GDP. “Who is the government working for?” he asked.
“When UPA was in power, corporate tax was much higher than what the common citizens and the middle class of India paid. Today, it is exactly flipped. Corporate tax has gone down and the middle class is paying much more taxes,” Nationalist Congress Party (Sharadchandra Pawar) leader Supriya Sule said.
Almost all Opposition leaders asked the government to remove GST on life and medical insurance. “I think, my colleague Mahuaji [Moitra] also spoke about it. We demand the withdrawal of GST on life and medical insurance premium… In fact, we want withdrawal because it is very, very important for the common man of India,” Sule said.