LTCG Tweaks to Boost Housing Sales and Investments, Say Experts
The government's move to amend the long-term capital gains tax regime is likely to drive investment and enhance sales across housing segments.
LtcgHousing SalesInvestmentsTax RegimeFinance Bill 2024Real Estate NewsAug 07, 2024
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. This is according to Niranjan Hiranandani, Chairman of the Hiranandani Group.
In Budget 2024, Union 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. However, she also suggested doing away with the indexation benefit for homes bought on or after April 1, 2001.
The move met with resistance and criticism from various quarters, but on Wednesday, the government moved an amendment to the Finance Bill, 2024 in Parliament. It allowed taxpayers to avail of the old LTCG regime if the property was acquired before July 23, when the Union Budget was tabled.
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. 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.
Industry players were relieved, just like the homebuyers. Dhruv Agarwala, Group CEO, Housing.com & Proptiger.com, called it a significant step forward. 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.
Anuj Puri, chairman of the ANAROCK Group, too welcomed the move. This change gives homeowners flexibility in their tax liabilities when they sell their property. Homebuyers' sentiment will improve as they have flexible options for addressing their future capital gains tax burden.
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.
Calling the amendment 'rare', Harsh Bhuta, Partner at Bhuta Shah & 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.
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Frequently Asked Questions
What is the impact of the amendment on the housing market?
The amendment is expected to boost investments and enhance sales across housing segments.
What are the two tax options available to taxpayers?
Taxpayers can calculate their LTCG tax at 12.5 per cent, without indexation, or at 20 per cent, with indexation, and pay the lower amount.
How will the amendment affect homebuyers' sentiment?
Homebuyers' sentiment will improve as they have flexible options for addressing their future capital gains tax burden.
What is the impact of the amendment on property prices?
The amendment can potentially cause some homeowners to sell properties sooner, raising the overall supply of housing units and helping to keep prices in check.
Who is benefited from the amendment?
Homeowners are benefited from the amendment as they can enjoy the best of both worlds and minimize their tax burden when they sell the house property.
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