Taxation

Choose the Correct Answer

Correct Answer : Option b

Explanation
Indexation is the process of adjusting the purchase price of an asset against inflation, thereby reducing the taxable capital gain when the asset is sold. Indexation is allowed only on capital gains, not on capital losses.

Statement 1 is correct: The Lok Sabha recently cleared the Finance Bill, amending Long-Term Capital Gains (LTCG) tax provisions on immovable properties. Indexation for property is removed for purchases after July 23, 2024. However, properties bought earlier retain indexation benefits through a grandfathering clause, ensuring protection against inflation while computing long-term capital gains tax.

Statement 2 is correct: The amendment offers taxpayers the option to choose the lower tax liability:
Old Regime: 20% LTCG tax with indexation for properties bought before July 23, 2024.
New Regime: 12.5% LTCG tax without indexation (reduced from 20%).
For properties acquired after July 23, 2024, only the new regime is applicable..

Statement 3 is not correct: The Income Tax Department notifies each year the Cost Inflation Index for the calculation of indexation benefits, i.e., inflation-adjusted price of an asset.