New LTCG Tax Options to Boost Real Estate Market
The government's decision to allow taxpayers to pick between two long-term property transactions will have a significant impact on the real estate market, benefiting both homeowners and aspiring homebuyers.
Real Estate MarketLtcg TaxHomeownersHomebuyersAnarock GroupAjmera Realty Infra India LtdAadhar Housing Finance LtdReal Estate NewsAug 07, 2024
The debate surrounding the long-term capital gains (LTCG) tax rate without indexation for properties purchased before July 23, 2024, has been ongoing since the Union Budget proposal. However, the Centre has now brought an amendment to the Finance Bill 2024, allowing taxpayers to select either a 12.5% LTCG tax rate without indexation or a 20% rate with indexation for property acquired before July 23 this year.
This change provides homeowners with flexibility in their tax liabilities when selling their property. For properties held over a long period, where inflation has significantly raised the property's value, opting for the 20% 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% 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 investors, especially for properties acquired before the prescribed date. However, the provision of this choice is a landmark development towards keeping 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% 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 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 homebuyers, housing sales momentum will continue unimpeded.
About Anarock Group Anarock is a leading real estate services company in India, providing a comprehensive range of services including residential advisory, commercial advisory, and investment services.
About Ajmera Realty & Infra India Ltd Ajmera Realty & Infra India Ltd is a leading real estate development company in India, with a focus on residential and commercial projects.
About Aadhar Housing Finance Ltd Aadhar Housing Finance Ltd is a leading housing finance company in India, providing a range of housing finance products and services.
Frequently Asked Questions
What is the new LTCG tax option introduced by the government?
The government has introduced a new LTCG tax option that allows taxpayers to choose between a 12.5% tax rate without indexation and a 20% tax rate with indexation for property acquired before July 23, 2024.
How will the new LTCG tax option impact the real estate market?
The new LTCG tax option is expected to boost the real estate market by providing clarity and implying potential tax burden reduction, leading to higher demand and increased sales.
What is indexation and how does it impact LTCG tax liability?
Indexation adjusts the purchase price for inflation, potentially reducing the taxable gain and overall tax liability. It is beneficial for properties held over a long period, where inflation has significantly raised the property's value.
How will the new LTCG tax option impact homebuyers and homeowners?
The new LTCG tax option will improve homebuyers' sentiment as they have flexible options for addressing their future capital gains tax burden. It will also benefit homeowners by providing them with flexibility in their tax liabilities when selling their property.
What is the expected impact of the new LTCG tax option on the affordable housing sector?
The new LTCG tax option is expected to boost the growth of the affordable housing sector over the next fiscal year by eliminating concerns over increasing project costs due to the LTCG amendments on budget day.
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