Recently, the Finance Bill 2024 was passed in the Lok Sabha with an amendment relaxing a proposal for the long-term capital gains (LTCG) tax on real estate.
- It allows taxpayers an option to switch to a new lower tax rate of 12.5% or stick to the old regime with a 20% tax rate and indexation benefit.
Key Highlights of the Amended Finance Bill 2024
- Capital Gains Tax on Real Estate: The major amendment in the Bill relates to the restoration of indexation benefit on the sale of properties bought prior to July 23, 2024.
- Now, individuals or Hindu Undivided Families (HUFs) who purchased houses before this date can choose to: pay LTCG tax under the new scheme at the rate of 12.5% without indexation, or claim the indexation benefit and pay 20% tax.
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Long-Term Capital Gains (LTCG):
- About: Long-term capital gains refer to the profit earned from the sale of assets held for more than a year.
- The tax treatment for long-term gains is generally more favourable.
- Common assets that generate LTCG include real estate, stocks, bonds, mutual funds, and other investments.
- The favourable tax treatment on LTCGs is designed to encourage investors to hold onto their investments for longer periods, promoting stability in the financial markets and supporting long-term economic growth.
- Indexation: Indexation is the process of adjusting the original purchase price of an asset or investment in order to neutralise the impact of inflation on it.
- It involves revising upward the cost of acquisition of an asset based on the inflation over the period for which it was held.
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- Government’s Stance on the Taxation Strategy
- The Budget aims to promote investment and benefit the middle class through a simplified tax regime.
- The reduction in customs duties, an increase in tax exemption limits on long-term capital gains in listed equities and bonds, and an increased standard deduction for salaried individuals were steps in simplifying the tax regime and providing relief to taxpayers.
- Simplification of Tax Regime
- It was emphasised that 72% of taxpayers opted for the new tax regime while filing returns this year, highlighting the government’s focus on tax simplification.
- Opposition’s Protest on GST
- Demand for Amendment: Opposition members protested against the 18% Goods and Service Tax (GST) on health and life insurance premiums.
- Government’s Stance: The GST subsumed previous state taxes on insurance premiums, and any amendments to GST rates require approval from the GST Council.
- The GST Council, established by the President under Article 279A (1) of the amended Constitution, is a joint forum of the Centre and the states.
- It includes the Union Finance Minister as the chairperson, the Union Minister of State for Finance, and a finance or taxation minister from each state.
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Finance Bill Overview
- Definition
- Finance Bill: A legislative bill concerning a country’s finances, including taxes, government expenditures, borrowings, and revenues.
- Rule 219 of the Rules of Procedure of Lok Sabha: ‘Finance Bill’ means the Bill ordinarily introduced in each year to give effect to the financial proposals of the Government of India for the following financial year and includes a Bill to give effect to supplementary financial proposals for any period.
- Introduction and Certification
- Introduction: The Finance Bill is introduced in the Lok Sabha after the Union Budget is presented and passed.
- Certification: It is certified as a Money Bill.
- Categories of Financial Legislation
- Money Bills: Defined under Article 110 of the Constitution, dealing exclusively with matters specified in Article 110.
- Financial Bills (I): Governed by Article 117 (1), containing matters mentioned in Money Bills along with other general legislative matters.
- Financial Bills (II): Governed by Article 117 (3), involving expenditure from the Consolidated Fund of India but excluding Money Bill matters.
- Money Bills
- Characteristics: All Money Bills are Financial Bills, but not all Financial Bills are Money Bills.
- Legislative Process:
- Introduced only in the Lok Sabha.
- The Speaker certifies a Bill as a Money Bill, and the Speaker’s decision is final.
- Can only be introduced on the President’s recommendation.
- Cannot be amended or rejected by the Rajya Sabha.
- The President can either approve or reject the Money Bill, but cannot return it for reconsideration.
- What is not a Money Bill? A bill is not to be deemed to be a money bill by reason only that it provides for
- Imposition of fines or other pecuniary penalties, or
- Demand for payment of fees for licences or fees for services rendered; or
- Imposition, abolition, remission, alteration or regulation of any tax by any local authority or body for local purposes.
- Financial Bills (I)
- Characteristics: Contains both Money Bill matters and other general legislation.
- Legislative Process:
- Can be introduced only in the Lok Sabha.
- Must be introduced on the President’s recommendation.
- Can be amended or rejected by the Rajya Sabha.
- Disagreements between Houses may lead to a joint sitting of Parliament.
- The President can give assent, withhold assent, or return the Bill for reconsideration.
- Financial Bills (II)
- Characteristics: Contains provisions for expenditure from the Consolidated Fund of India, but any of the matters mentioned in Article 110.
- Legislative Process:
- Can be introduced in either House of Parliament.
- Requires the President’s recommendation at the consideration stage, not at the introduction stage.
- Governed by the same procedure as an ordinary Bill.
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August 9, 2024
