Relief! Fin Min Gives LTCG Tax Options to Realty Sector

Now, housing sales momentum will continue unimpeded, Anuj Puri, Chairman of ANAROCK, opined.
MUMBAI, Aug 7 (The CONNECT) – Amid protests against the withdrawal of the indexation benefit, the government proposed amendments to the provision.
The government’s revised budget announcement allows taxpayers to pick between a 12.5% Long-Term Capital Gains (LTCG) tax rate without indexation and a 20% rate with indexation, for properties purchased before July 23, 2024.
This will have a very profound impact on both homeowners and aspiring homebuyers, said Anuj Puri, Chairman – ANAROCK Group:
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% tax rate with indexation would be beneficial, Puri said.
Indexation adjusts the purchase price for inflation, potentially reducing the taxable gain and overall tax liability. For properties held for shorter periods or in low-inflation periods, the 12.5% rate sans indexation could be more beneficial and result in a lower tax burden, he pointed out.
From the buyers’ point, this revision can potentially stimulate the residential property market because it provides clarity and implies potential tax burden reduction. Homebuyers’ sentiment will improve as they have flexible options for addressing their future capital gains tax burden. This will result in higher demand, particularly in markets where property values have been seen to rise significantly, Puri said.
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.
As per ANAROCK Research, H1 2024 saw total sales of nearly 2.51 lakh units across the top 7 cities, 9% more than the same period last year (H1 2023). Given that Q2 2024 saw sales tapering due to the election heat and the increased prices across cities, the new tax imposed by the government in the budget was considered a dealbreaker for many.
Now, with the government giving these options to the homebuyers, housing sales momentum will continue unimpeded, Puri opined.
Vimal Nadar, Senior Director & Head of Research, Colliers India: The government’s amendment to not enforce the revised taxation rules on long term capital gains arising out of sale of land & buildings retrospectively is expected to boost investors’ & homeowners’ sentiment and thus the real estate sector at large. The discretion to opt between higher tax rate with indexation and lower tax rate without indexation, whichever results in lower tax liability in property sales, aims to avoid higher tax expense in cases where the gains are not significant to offset the indexation benefits over time. The flexibility now provided to taxpayers to compute taxable gains under both the scenarios also removes administrative inconvenience and simplifies tax computation without any potential loss to the seller on properties acquired before July 23, 2024.
At a time when housing sales are stabilising at higher levels than the past average, this amendment is timely and will aid in allaying concerns around taxability of capital gains.
Akhil Saraf, Founder and CEO, Reloy: I’m glad the government is partially undoing the change.
However entry and exit costs of real estate – stamp duty needs to be re looked. AS much as 5%-6% on buying and selling real estate vs 0.1% STT on equities is inherently unfair to the largest job creating sector.
Shrinivas Rao, FRICS, CEO, Vestian: Post removal of indexation benefit in the Union Budget 2024-25, investors adopted a wait-and-watch approach to reassess their investment strategies. However, the government’s recent announcement to restore the indexation benefit is expected to boost supply in the secondary market and stabilize demand-supply dynamics by attracting investors.
Investors now have two options to optimize their returns. They can evaluate the value of their assets at the time of sale to secure best returns on their investments.
Pritam Chivukula, Co-Founder & Director, Tridhaatu Realty and Vice President, CREDAI-MCHI
“The recent amendment proposed by Finance Minister Nirmala Sitharaman to allow taxpayers the option to choose between a 12.5% LTCG rate without indexation or a 20% rate with indexation for properties acquired before July 23, 2024, is a welcome relief for the real estate industry. This balanced approach not only addresses the concerns raised by stakeholders but also provides homeowners with flexibility in managing their tax liabilities. The initial proposal to eliminate indexation benefits had sparked significant apprehension within the sector, as it threatened to impact the growth momentum we’ve been working hard to maintain. By reintroducing these options, the government has shown its responsiveness to the industry’s needs and the broader economy. This move will encourage continued investment in real estate, providing stability and fostering confidence among both developers and homebuyers. We commend the government’s decision and look forward to continued collaboration to support sustainable growth in the sector.”