The Union Budget 2024, announced recently by the Finance Minister Nirmala Sitharaman, has proposed the removal of the indexation benefit for homeowners, which allows them to adjust property prices for inflation, impacting India's real estate sector.
Stating that the removal of the indexation benefit for long-term capital gains in real estate is likely to significantly impact property owners' holdings assets for more than 10 years, Chairman of NAREDCO, Dr Niranjan Hiranandani said, “Owners of heritage homes may face a higher tax burden upon sale, as the absence of indexation prevents adjusting the property's cost basis for inflation. The change could result in higher taxes for individuals who want to sell assets held for more than 10 years. On the contrary, new investors holding properties for more than two years will benefit from the lower long-term capital gains tax, potentially making short and mid-term investments more attractive. Hence, taking away indexation benefits won’t hurt real estate investment going forward. Thus, equalizing asset classes such as real estate and the capital market will present investors with more attractive options for parking their earnings into real estate.”
Welcoming the announcement, President of CREDAI-MCHI, Domnic Romell said, “The reduction in long-term capital gains tax from 20% to 12.5% is a commendable move by the Finance Minister, significantly simplifying tax calculations for the public. By uniformly taxing all long-term assets at 12.5%, real estate investments are now on par with other financial assets. As an apex body of the real estate developers, we view this as a highly positive initiative by the government, as it is likely to attract younger investors to the real estate arena. This move not only highlights housing as a necessary commodity for permanent residence, but also positions it as an attractive investment avenue, given the reasonable holding period of 24 months.”
“In Maharashtra, the three-year period for setting off stamp duty paid on the acquisition of flats will provide an additional advantage to new buyers. While this may have a slightly negative tax impact on those who purchased properties post-2001 and are selling now, the overall benefits for new investors and the real estate market are substantial,” he added.
"The Union Budget 2024-25 has rationalised the long-term capital gains (LTCG) taxes across asset classes, bringing equity, debt, gold and real estate on an equal footing. For property sellers, the impact of withdrawal of the indexation benefit on property sales has been tempered with a concurrent reduction in the LTCG tax rate from 20% to 12.5%. While sellers may potentially face higher taxes, we should see investors in real estate reassess their investment strategies, while homebuyers and sellers will adapt to the new paradigm,” Director of The Guardians Real Estate Advisory, Jayesh Rathod said.
Managing Director, Gera Developments, Rohit Gera said, “The move to align long term capital gain tax for real estate with other financial assets is a positive move and will make investment in real estate more attractive. Eliminating indexation will hurt people who have long term investments in real estate. Investors who have purchased homes recently or who purchase with a view to sell in a few years, will be benefitted by the lower tax rate even though the indexation benefits have been withdrawn. Properties acquired before 2016-17 and sold this year will pay more tax at the lower tax rate in the absence of indexation while the properties acquired after 2016-17 and sold this year will be benefitted by paying lower tax.”
