New Capital Gains Tax Regime: How Will It Impact Real Estate Transactions?
The new capital gains tax rules aim to simplify the tax regime, but will real estate transactions benefit or be adversely impacted? We explain the pros and cons of the new rules.
Capital Gains TaxReal EstateProperty TransactionsBudget 2024Tax RegimeReal EstateJul 28, 2024
To understand the implications of this change, let's consider two scenarios with different sale values. In scenario 1, with a sale consideration of ₹1,000, the new regime has a better tax outcome. However, in scenario 2, with a sale consideration of ₹400, the old regime has a better tax outcome. This highlights that the impact of the tax proposal is fact-specific and will depend on individual cases.
The new regime may increase or decrease the tax outgo on real estate sale transactions. One key impact is that it shrinks the liquidity in cases where Section 54 of the Income Tax Act, 1961, benefits are availed, which will especially impact senior citizens' retirement planning where sale of property is considered for liquidity purposes.
Other key proposals in the budget include reducing the period of holding for REOT units from 36 months to 12 months, introducing TDS on transfer of co-owned properties, reducing TDS on rent, and changing the tax treatment of rental income. Additionally, the government has encouraged states to moderate high stamp duty rates universally and to explore additional reductions specifically for properties purchased by women.
The impact of these changes on the real estate sector remains to be seen. It will be interesting to observe how the proposal affects real estate sales or preferences from an investment perspective. Overall, the new capital gains tax regime aims to simplify the tax regime, but its implications on real estate transactions will depend on individual cases and circumstances.
Deloitte India is a leading professional services firm that provides audit, consulting, financial advisory, risk management, and tax services to clients across various industries.
The writer is a partner at Deloitte India and has expertise in taxation and real estate. Views expressed are personal and not necessarily reflect those of the organization.
Frequently Asked Questions
What is the new tax rate on long-term capital gains on transfer of immovable property?
The new tax rate on long-term capital gains on transfer of immovable property is 12.5%.
Will the new regime benefit or hurt real estate transactions?
The impact of the new regime on real estate transactions will depend on individual cases and circumstances.
What is the period of holding for REOT units for LTCG treatment?
The period of holding for REOT units for LTCG treatment has been reduced to 12 months from 36 months.
Will the new regime affect senior citizens' retirement planning?
Yes, the new regime may shrink the liquidity in cases where Section 54 of the Income Tax Act, 1961, benefits are availed, which may impact senior citizens' retirement planning.
What is the TDS rate on rent paid by individual/Hindu Undivided Family to a resident under Section 194-IB?
The TDS rate on rent paid by individual/Hindu Undivided Family to a resident under Section 194-IB has been reduced to 2% from 5%.
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