The Centre’s proposal to tweak the Budget 2024 announcement on long-term capital gains (LTCG) for the real estate sector is likely to boost 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.
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. She also suggested doing away with the indexation benefit for homes bought on or after April 1, 2001.
On Tuesday, the Centre 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 and 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.
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.”
Calling the amendment “rare”, Harsh Bhuta, partner at Bhuta Shah and 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.
First Published: Aug 07 2024 | 4:35 PM IS