Understanding the Recent Changes in Tax Arbitration Opportunity for Crypto Investors 📊
After the recent Union Budget, there seems to be some confusion regarding a tax arbitration opportunity that may benefit those who have transferred long-term capital assets like land, buildings, or houses. The theory suggests that by depositing long-term capital gains or sales consideration in a designated account and refraining from utilizing the funds until the specified period expires, one could potentially reduce their tax liability from 20% to 12.5%. Let’s delve into the details of how this opportunity may unfold.
Key Points to Consider
- The tax arbitration opportunity is said to be applicable only to individuals who sold their property before a certain date but have not yet paid the capital gains tax on the sale.
- For properties bought and sold before a specific date, the tax rules for capital gains remain unchanged, with long-term capital gains being taxed at 20% after indexation of the acquisition cost.
Exploring the Benefits of the Indexation Regime
When a property is held for more than 24 months and is transferred before a certain date, the seller can deduct the indexed cost of acquisition while computing the long-term capital gains. Indexation helps adjust the cost of acquisition to counter the effects of inflation over the years since the property was acquired. The calculation is based on the Cost Inflation Index (CII) notified by the government annually, with the resulting LTCG being taxable at 20%.
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