Industry analysts applauded the government’s move on Wednesday to revise the long-term capital gains (LTCG) tax on real estate sales, stating that sellers will now have more flexibility as a result of the change.
In response to industry demands, the government on Tuesday amended Finance Bill 2024 to give taxpayers the option of choosing between a 20 percent rate with indexation or a 12.5% rate without indexation for property acquired before July 23 of this year.
According to experts, this revision may lessen the tax burden on sellers, which will encourage investment and sales in the property market.
The finance minister’s proactive approach to promoting real estate industry growth is evident, according to Shishir Baijal, Chairman and Managing Director of Knight Frank India.
Sellers now have choice in choosing the option that best fits their budget and the amount of value on their property.
Even though the 12.5% rate could sound appealing right away, choosing it or the 20% rate with indexation should only be decided after giving considerable thought to each individual’s situation.
“Ideally, the 12.5% rate might be more advantageous if a property’s value has greatly outpaced inflation,” Baijal stated.
Overall, this move is expected to significantly benefit the real estate sector and its stakeholders, promoting robust growth and dynamic expansion across the industry, according to Nitin Bavisi, CFO, Ajmera Realty and Infra India.
When property appreciation is more in line with the rate of inflation, indexation may be beneficial.
“If an individual or HuF (Hindu Undivided Family) transfers a long-term capital asset, such as land or building, or both, and the asset is acquired before July 23, 2024, the taxpayer may compute his taxes under the new scheme (20 percent with indexation) and the old scheme (12.5 percent without indexation), and pay the tax which is lower of the two,” states the amendment.
By factoring in inflation when determining an asset’s acquisition price, indexation lowers gains and eventually tax obligations.
During the presentation of the Union budget, Finance Minister Nirmala Sitharaman declared that the tax on long-term capital gains (LTCG) has been reduced from 20 percent to 12.5%. Nevertheless, the real estate indexation benefit for homes purchased in or after 2001 was eliminated.
