In Budget 2024, FM Sitharaman proposed an overhaul in the capital gains tax regime, including lowering the LTCG tax to 12.5% from 20%
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The Centre’s plan to tweak the Budget 2024 announcement on the long-term capital gains (LTCG) tax for the real estate sector is likely to boost the investments and housing sales in the country, according to industry executives.
“By enabling taxpayers to choose the lower tax burden between the new and old schemes, the amendment is poised to drive investment and enhance sales across housing segments,” said Niranjan Hiranandani, Chairman of the Hiranandani Group.
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In Budget 2024, Finance Minister Nirmala Sitharaman proposed an overhaul in the capital gains tax regime, including lowering the LTCG tax to 12.5 per cent from 20 per cent. But she also suggested doing away with the indexation benefit for homes bought on or after April 1, 2001.
On Tuesday, the government moved an amendment to the Finance Bill, 2024, allowing taxpayers to avail of the old LTCG regime if the property is acquired before July 23, 2024.
A taxpayer can now calculate their LTCG tax at 12.5 per cent, without indexation, or at 20 per cent, with indexation, and pay the lower amount. This applies to those who bought property before July 23.
For those who bought it afterwards, the new rule would be applicable.
Shishir Baijal, Chairman and Managing Director, Knight Frank India said that while the 12.5 per cent rate may seem immediately attractive, the decision to opt for it or the 20 per cent rate with indexation should be made after “careful consideration of individual circumstances”.
“Ideally, if a property’s value has significantly outpaced inflation, the 12.5 per cent rate might be more beneficial. However, indexation could be advantageous in cases where property appreciation is closer to the inflation rate,” he said.
The industry, however, seemed happy with the move.
“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,” said Dhruv Agarwala, Group CEO, Housing.com & Proptiger.com, calling it a “significant step forward”.
“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.
Niranjan Hiranandani, chairman of the Hiranandani Group and the National Real Estate Development Council (NAREDCO), applauded the finance minister for the amendments proposed in the finance bill, providing substantial tax relief for the real estate sector. “The government’s initiative is a significant step forward. The amendment is poised to drive investment and enhance sales across housing segments. We are grateful for the finance minister’s forward-thinking approach in implementing these beneficial measures,” stated Hiranandani.
Further, Anuj Puri, chairman of the ANAROCK Group, also welcomed the move, saying, “This change gives homeowners flexibility in their tax liabilities when they sell their property. For properties held over a long period, where inflation has majorly raised the property’s value, opting for the 20 per cent tax rate with indexation would be beneficial. For properties held for shorter periods or in low-inflation periods, the 12.5 per cent rate without indexation could be more beneficial and result in a lower tax burden.”
Rajeshwar Burla, senior vice president and group head, corporate ratings, ICRA Ltd, also stated that the old regime would be more suitable in cases where returns are lower than 10 per cent. Otherwise, the new regime would be a better option where the returns are more than 10 or 11 per cent.
Meanwhile, Sanjay Sanghvi, partner in the direct tax practice group at Khaitan & Co, called the change “a ‘prospective law’ (on a going forward basis) as opposed to being retrospective in nature as originally contained in the finance bill.” He said, “This change will provide much-needed relief to taxpayers (individuals/HUFs).”
Industry executives had expressed concern with the announcement in the Budget, stating that a higher tax burden could hamper the positive sentiment in the sector which has been witnessing all-time high sales.
After the tweaks, they now believe the optimism is unlikely to be hindered.
Baijal said, “This amendment is expected to stimulate investment and sales in the housing market by potentially reducing the tax burden on sellers.”
Puri stated that this revision can potentially stimulate the residential property market because it provides clarity and implies a potential tax burden reduction. “Homebuyers’ sentiment will improve as they have flexible options for addressing their future capital gains tax burden. Also, the anticipation of these changes can potentially cause some homeowners to sell properties sooner to benefit from the new tax regime. This will raise the overall supply of housing units available on the market, helping to keep prices in check,” he added.
Calling the amendment “rare”, Harsh Bhuta, Partner at Bhuta Shah & Co LLP said, “This will allow homeowners to enjoy the best of both worlds and minimise their tax burden when they sell the house property.”
Ritesh Mehta, Senior Director, and Head (North and West) – Residential Services and Developer Initiative, India, JLL said, “By maintaining the cycle of selling and buying, this can foster increased liquidity and a greater sense of optimism within the Real Estate sector.”
The share market also responded positively to the tweaks. On Wednesday, the Nifty Realty index closed 1.83 per cent in the green, with nine out of ten stocks gaining.
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