Real Estate Market to Get a Boost from New LTCG Tax Options
The government's decision to allow taxpayers to choose between two long-term property transactions has brought cheers to the real estate industry
Ltcg TaxReal Estate MarketHomeownersHomebuyersTax LiabilitiesReal Estate NewsAug 07, 2024
The debate kicked off after the Union Budget which proposed to levy a 12.5 per cent long-term capital gains (LTCG) tax rate without indexation for properties purchased before July 23, 2024.
The move triggered a massive deliberation among the stakeholders – from real estate sellers to the industry.
Now, the Centre has brought an amendment to the Finance Bill 2024, to allow taxpayers to select either a 12.5 per cent long-term capital gains (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.
Frequently Asked Questions
What is the new LTCG tax option introduced by the government?
The government has introduced an option for taxpayers to choose between a 12.5 per cent long-term capital gains (LTCG) tax rate without indexation or a 20 per cent rate with indexation for property acquired before July 23 this year.
How will this new option benefit homeowners?
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.
How will this new option affect the real estate market?
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.
What is the impact of this new option on investors?
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.
How will this new option affect affordable housing?
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.
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