Real Estate Tax Reforms: What Budget 2024 Means for Property Sellers
Removal of indexation benefit may lead to higher tax burden on real estate sales, say experts.
Real EstateBudget 2024Capital Gains TaxIndexation BenefitProperty SellersReal Estate NewsJul 23, 2024
The budget has proposed a hike in short-term capital gains tax from 15% to 20%, while long-term capital gains tax will be charged at a flat rate of 12.5%. To benefit lower and middle-income classes, the finance minister has proposed to increase the limit of exemption of capital gains on certain financial assets to ₹1.25 lakh per year.
Experts believe that the removal of the indexation benefit will negatively impact property sellers, leading to an increase in tax liability. Earlier, long-term capital gains from property were taxed at 10% with indexation benefits. According to the Budget documents, the new tax rate for long-term capital gains on property sales will be 12.5% without indexation benefit.
Real estate experts say that the decision to remove the indexation benefit for long-term capital gains tax on real estate marks a significant shift for the sector. While the intention to simplify and rationalise the tax regime is clear, the removal of the indexation benefit, despite the reduction in the LTCG tax rate to 12.5%, could lead to a higher tax burden on real estate transactions.
Some experts believe that this may have a mixed impact on the real estate sector. On one hand, it may discourage investors from putting their money into assets that are taxed at a higher rate. On the other hand, the government's plans to promote homeownership by encouraging states to reduce stamp duty rates could significantly reduce the cost of property acquisition in India.
Frequently Asked Questions
What is the proposed short-term capital gains tax rate?
20%
What is the proposed long-term capital gains tax rate?
12.5%
What was the earlier long-term capital gains tax rate on property sales?
10% with indexation benefits
What is the purpose of indexation in capital gains tax?
Indexation adjusts the purchase price of an asset for inflation, reducing taxable profits and tax liabilities.
How will the removal of indexation benefit impact property sellers?
It may lead to an increase in tax liability and a higher tax burden on real estate transactions.
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