Budget 2024: Higher Taxes on Older Property Sales Following Indexation Removal
The removal of indexation benefit on long-term capital gains tax on real estate assets is likely to increase the tax burden on property owners, especially those holding properties for over five years.
Property TaxReal EstateBudget 2024Indexation BenefitCapital Gains TaxReal Estate NewsJul 23, 2024
Prior to this change, homeowners were eligible for an indexation benefit, which allowed them to adjust the purchase price of their property according to the Consumer Price Index (CPI). This adjustment helped reduce their capital gains tax liability. However, with the removal of this benefit, property owners will now have to pay a higher tax on their long-term capital gains (LTCG).
While the Finance Minister has also reduced the LTCG tax rate from 20% to 12.5%, experts believe that the effective tax incidence on LTCG against real estate assets will still be higher for most owners, especially those who have held their properties for more than five years.
Industry stakeholders and experts have expressed mixed opinions on this move. Some, like Dhruv Agarwala, Group CEO of Housing.com and PropTiger.com, believe that the removal of the indexation benefit could lead to a higher tax burden on real estate transactions, despite the reduction in the LTCG tax rate. Others, like Vimal Nadar, Senior Director and Head of Research at Colliers India, see the move as a positive step towards limiting speculative investment in real estate asset classes and encouraging end-user confidence in the market.
Amit Goyal, Managing Director of India Sotheby's International Realty, welcomes the reduction of the LTCG tax rate, despite the removal of the indexation benefit, as it will encourage more liquidity in property transactions and bring about higher uniformity in long-term capital gains tax across different asset classes.
In response to concerns raised by industry stakeholders and opposition parties, Finance Secretary TV Somanathan has clarified that the indexation benefit offered till 2001 will be protected, providing some relief to property owners.
Frequently Asked Questions
What is the indexation benefit in capital gains tax?
The indexation benefit is an adjustment to the purchase price of a property according to the Consumer Price Index (CPI) to reduce the capital gains tax liability.
How will the removal of the indexation benefit affect property owners?
The removal of the indexation benefit will increase the tax burden on property owners, especially those holding properties for over five years.
What is the new LTCG tax rate announced in Budget 2024-25?
The new LTCG tax rate announced in Budget 2024-25 is 12.5%, down from 20% previously.
Will the removal of the indexation benefit affect the real estate market?
Experts believe that the removal of the indexation benefit could lead to a higher tax burden on real estate transactions, which may affect the real estate market.
Are there any exemptions to the removal of the indexation benefit?
Yes, the indexation benefit offered till 2001 will be protected, providing some relief to property owners.
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