Missed Intra-Head LTCG Setoff: Impact of Section 112 Amendments vs. Section 48

When there is sale of two Properties say Flats, during the FY 2024-25 one in June 2024 and one in Dec 2024, where both the property has LTCG if Indexation is not used, whereas if Indexation is used the first house property has a Long Term Capital Gain and Long term capital Loss.

As per the current proviso to section 48

"Provided further that where long-term capital gain arises from the transfer[(which takes place before the 23rd day of July, 2024)] of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first provi­so, the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted"

It means that after the 23rd of July 2024 there is no indexation available for long-term capital assets.

However due to backlash from investors and real estate market sector, govt has notified Amendment to Finance Bill (no 2)on 06.08.2024, it brought in some relaxation to Individual and HUF by inserting 2nd Proviso to Sec 112(1) (a) as below

"Provided further that in the case of transfer of a long-term capital asset, being land or building or both, which is acquired before the 23rd day of July, 2024, where the income-tax computed under item (B) exceeds the income-tax computed in accordance with the provisions of this Act, as they stood immediately before their amendment by the Finance (No. 2) Act, 2024, such excess shall be ignored;"

Which says that if the tax in case of without Indexation benefit is more than the tax as calculated with indexation benefit, then such excess tax must be ignored. That means in case of loss, the tax is Nil.

Since the further amendment was made only in Sec 112 (1)(a) and not to Section 48, it means that where on account of indexation benefit, LTCL arises, income tax on the same shall be Nil. Loss if any will be ignored.

In view of above explanation when there is sale of two Properties, during the FY 2024-25 where both the property has LTCG if Indexation is not used, whereas if Indexation is used the first house property has a Long Term Capital Gain and Long term capital Loss, then the loss is ignored and cannot be setoff with indexation benefit due to amendment effect to Section 48..