Navigating the 2024 Budget Reforms: Impact on Real Estate Capital Gains Tax
India's 2024 budget has introduced significant changes to capital gains tax rates and holding periods for listed and unlisted assets, including real estate. Experts weigh in on the implications for long-term investors.
Real EstateCapital Gains TaxUnion Budget 2024Long Term InvestorsShort Term Capital GainsReal EstateJul 25, 2024
Capital gains refer to the increase in value of a capital asset, such as real estate, gold, stocks, bonds, etc., from the time of purchase to the time of sale. The profit gained due to this difference is considered 'income' and therefore applicable to tax. Holding period refers to the duration for which an asset has been held. Capital gains are categorized as short-term or long-term based on the holding period.
In the previous regime, different holding periods were considered for different types of assets. 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 needed to qualify as long-term capital gains. Physical real estate is considered an unlisted asset, and therefore, a period of 24 months will be applicable to qualify for long-term capital gains. Shares of real estate companies, REITs, and InvITs listed abroad will be considered as unlisted assets.
The Short Term Capital Gains rate for all listed assets has increased from 15% to 20%, whereas unlisted assets will continue to be taxed according to the tax slab and rate applicable to the individual investor. The Long Term Capital Gains 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 - if you have purchased a property before 2001, the property valuation as of April 2001 will be considered as the acquisition cost, which shall be used to determine capital gains.
Industry experts have had a mixed response to these changes. Mr. Tapan Ray, MD and Group CEO, GIFT City, believes that a tax-efficient regime for retail funds and ETFs will create new business opportunities for asset management companies in GIFT City and attract investments from NRIs and foreign retail investors into India.
Deep Vadodaria, CEO of NILA Spaces Limited, echoed similar feelings, stating that the government's balanced approach, including the raise in both short-term and long-term capital gains, underscores a commitment to fiscal responsibility and sustainable economic growth.
Mr. Vedanshu Kedia, Director, Prescon Group, believes the removal of the indexation benefit will present a mixed impact for property sellers. According to him, without this adjustment, sellers may end up paying more tax in real terms, especially in a high-inflation environment.
Whether you stand to gain or lose under the new regime will depend largely upon the average rate of appreciation your investment has witnessed over its tenure. In India, indexation for tax purposes has been taken at around 4 to 5% p.a. If your real estate investment has appreciated much higher than inflation, the new regime will serve well. However, if your property has appreciated at a rate lower than or very close to inflation, you may need to pay more.
Frequently Asked Questions
What are the new holding periods for listed and unlisted assets?
The new holding periods are 12 months for listed assets and 24 months for unlisted assets.
How will the Short Term Capital Gains rate be affected?
The STCG rate for all listed assets has increased from 15% to 20%.
What is the impact of the removal of indexation benefit on property sellers?
Without indexation, sellers may end up paying more tax in real terms, especially in a high-inflation environment.
How will the Long Term Capital Gains rate be affected?
The LTCG rate for all financial and non-financial assets has been reduced from 20% to 12.5% without any indexation benefit.
What is the cut-off rate for properties purchased before 2001?
The property valuation as of April 2001 will be considered as the acquisition cost, which shall be used to determine capital gains.
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