Navigating 2024 Budget Reforms: Understanding Real Estate Capital Gains Tax Changes
Discover how the revised Short Term and Long Term Capital Gains tax rates affect your real estate investments.
Real EstateCapital Gains TaxBudget ReformsIndiaProperty InvestmentsReal Estate NewsJul 25, 2024
Capital gains refer to the increase in the value of a capital asset, such as real estate, from the time of purchase to the time of sale. The profit gained due to this difference is considered as 'income' and therefore applicable to be taxed. The holding period, which is the duration for which an asset has been held, plays a crucial role in determining whether the capital gains are short-term or long-term.
In the previous regime, different holding periods were considered for different types of assets. However, the Union Budget 2024 has standardized the holding periods to just two - 12 months and 24 months. For listed assets, a holding period of 12 months is needed to qualify as long-term capital gains, while for unlisted assets, a holding period of 24 months is required.
In the context of real estate, stocks of listed real estate companies, REITs, and InvITs fall under the category of listed assets, with a 12-month holding period. Physical real estate is considered an unlisted asset, with a 24-month holding period. Shares of real estate companies, REITs, and InvITs listed abroad are treated as unlisted assets.
The STCG rate for all listed assets has increased from 15% to 20%, while unlisted assets will continue to be taxed according to the tax slab and rate applicable to the individual investor. The LTCG rate for all financial and non-financial assets has been reduced from 20% to 12.5%, without any indexation benefit. However, a cut-off rate has been offered, whereby properties purchased before 2001 will be valued as of April 2001 for determining capital gains.
Industry experts have expressed mixed opinions about these changes. While some believe that the revised tax rates will create new business opportunities and attract investments, others are concerned that the removal of the indexation benefit may result in higher tax outgo for property sellers.
Whether you stand to gain or lose under the new regime will depend on the average rate of appreciation your investment has witnessed over its tenure. If your real estate investment has appreciated significantly higher than inflation, the new regime will serve you well. However, if your property has appreciated at a rate lower than or close to inflation, you may need to pay more.
GIFT City is a business district in Gujarat, India, aimed at promoting financial and economic growth. NILA Spaces Limited is a real estate development company, and Prescon Group is a property consultancy firm.
GIFT City, established in 2007, is a leading business district in Gujarat, India, focused on promoting financial and economic growth. NILA Spaces Limited is a renowned real estate development company, committed to delivering innovative and sustainable projects. Prescon Group is a trusted property consultancy firm, offering expert advice and services to clients.
Frequently Asked Questions
What is the revised holding period for listed real estate assets?
12 months
What is the revised holding period for unlisted real estate assets?
24 months
What is the new STCG rate for listed assets?
20%
What is the new LTCG rate for all financial and non-financial assets?
12.5%
Will the removal of the indexation benefit affect property sellers?
Yes, it may result in higher tax outgo for some sellers
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