New LTCG Tax Options Set to Revitalize the Real Estate Market
The government's decision to allow taxpayers to choose between two long-term property transactions is expected to boost the real estate industry, with experts saying it will have a profound impact on both homeowners and aspiring homebuyers.
Ltcg TaxReal Estate MarketHomeownersAspiring HomebuyersResidential Property MarketReal Estate MumbaiAug 07, 2024
The debate over the proposed 12.5 per cent long-term capital gains (LTCG) tax rate without indexation for properties purchased before July 23, 2024, has been put to rest with the Centre bringing an amendment to the Finance Bill 2024. The amendment allows taxpayers to choose between a 12.5 per cent LTCG tax rate without indexation or a 20 per cent rate with indexation for property acquired before July 23 this year.
This change gives homeowners flexibility in their tax liabilities when they sell their property. For properties held over a long period, where inflation has majorly raised the property's value, opting for the 20 per cent tax rate with indexation would be beneficial. Indexation adjusts the purchase price for inflation, potentially reducing the taxable gain and overall tax liability.
According to Anuj Puri, Chairman, Anarock Group, for properties held for shorter periods or in low-inflation periods, the 12.5 per cent rate sans indexation could be more beneficial and result in a lower tax burden. This revision can potentially stimulate the residential property market because it provides clarity and implies potential tax burden reduction.
Homebuyers' sentiment will improve as they have flexible options for addressing their future capital gains tax burden. This will result in higher demand, particularly in markets where property values have been seen to rise significantly, Puri added.
Moreover, 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.
The concern pertaining to higher LTCG tax liability on property sales had raised a sense of anxiety among the investors, especially for the properties that were acquired before the prescribed date.
The provision of this choice is a landmark development towards keeping the taxpayers' and investors’ sentiment at the epicentre and will give a major boost to investments in the real estate sector across housing segments.
Additionally, the rollover benefits remain intact which means that if capital gains are invested, deductions under Sections 54, 54F and 54EC for buying or constructing residential real estate up to specified limits, LTCG will continue to be exempt from tax, said Nitin Bavisi, CFO, Ajmera Realty & Infra India Ltd.
Overall, this move is set to greatly benefit the real estate sector and its stakeholders, fuelling robust growth and dynamic expansion across the industry. This flexibility effectively serves as a grandfathering provision for all property transactions completed before the budget's presentation in Parliament on July 23.
It will eliminate concerns over increasing project costs due to the LTCG amendments on budget day and further boost the growth of the affordable housing sector over the next fiscal year, said Rishi Anand, MD and CEO at Aadhar Housing Finance Ltd.
The first half of this year saw total sales of nearly 2.51 lakh units across the top seven cities, 9 per cent more than the same period last year (H1 2023), as per Anarock Research. As Q2 2024 saw sales tapering due to the election heat and the increased prices across cities, the new tax imposed by the government in the budget was considered a deal-breaker for many. Now, with the government giving these options to home buyers, housing sales momentum will continue unimpeded.
Frequently Asked Questions
What is the new LTCG tax rate for properties purchased before July 23, 2024?
The government has introduced an amendment to the Finance Bill 2024, allowing taxpayers to choose between a 12.5 per cent LTCG tax rate without indexation or a 20 per cent rate with indexation for property acquired before July 23 this year.
How will the new LTCG tax options affect homeowners?
The new LTCG tax options will give homeowners flexibility in their tax liabilities when they sell their property. For properties held over a long period, where inflation has majorly raised the property's value, opting for the 20 per cent tax rate with indexation would be beneficial.
What is the impact of the new LTCG tax options on the real estate market?
The new LTCG tax options are expected to stimulate the residential property market, providing clarity and implying potential tax burden reduction. Homebuyers' sentiment will improve, resulting in higher demand, particularly in markets where property values have been seen to rise significantly.
Will the new LTCG tax options affect the supply of housing units available on the market?
Yes, the anticipation of the new LTCG tax options may cause some homeowners to sell properties sooner, raising the overall supply of housing units available on the market, helping to keep prices in check.
What are the rollover benefits under the new LTCG tax options?
The rollover benefits remain intact, which means that if capital gains are invested, deductions under Sections 54, 54F and 54EC for buying or constructing residential real estate up to specified limits, LTCG will continue to be exempt from tax.
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