The Impact of Budget 2024 on Real Estate: 7 Things You Need to Know
Find out how the recent budget proposals will affect your property sale or purchase
Real EstateBudget 2024Property SaleTax ImplicationsReal Estate NewsJul 24, 2024
The long-term capital gains (LTCG) tax rate has been reduced from 20% with indexation benefit to 12.5% without indexation for the real estate sector. While this may seem like a reduction in tax rates, the removal of indexation benefits could lead to higher taxes for property sellers.
Indexation allows taxpayers to adjust the purchase cost of an asset for inflation over the period of ownership, effectively reducing the capital gain and the associated tax liability upon sale. Without indexation, the original purchase cost is used, leading to a potentially higher capital gain and increased tax burden.
We answer 7 questions that property sellers may have about the impact of Budget 2024 on their assets.
1. How will removal of indexation impact property owners wanting to sell their asset?
The removal of indexation can have significant implications for sellers, depending on when the property was acquired. Sellers who acquired their properties in 2001 are likely to experience the maximum increase in taxable capital gains due to the removal of indexation.
2. Impact on sellers based on the year the property was acquired
Sellers who bought properties in 2010 will also face an increase in taxable capital gains, but the impact will be less than for properties acquired in 2001. Sellers who bought property in 2020 will experience the least negative impact from the removal of indexation.
3. How will people planning to sell their parental property inherited in or after 2001 be impacted?
Individuals planning to sell inherited property (acquired from parents after 2000) will face a higher tax liability due to the removal of indexation. Succession planning should account for this increased tax cost when considering the timing and method of property transfer.
4. What should people who are planning to buy a second property for investment do now?
Individuals or Hindu Undivided Families may leverage the provisions of Section 54 of the Income Tax Act, 1961 to deduct the cost incurred in purchasing and/or constructing a new residential property from the capital gains arising from the sale of land or building.
5. Several people channelise gains made in shares into real estate - what are the options available for them?
Individuals and HUFs still have the opportunity to invest in residential house property to avail tax benefits on capital gains tax on sale of non-residential assets (including shares) under Section 54F of the Income Tax Act, 1961.
6. What will be the impact on luxury properties worth more than ₹10 crore?
The impact will be higher as properties worth more than ₹10 crore do not get the full cover of exemption under Section 54 and 54F of the Income Tax Act.
7. Will it lead to High Networth Individuals investing in foreign shores?
Real estate experts say that it may not entirely lead to exodus of investment, as is being suspected. The tax incidence under the new system of 12.5% plus surcharge and cess without indexation might be lower in some cases, for instance, where the property is purchased in 2001 and sold at a multiple of eight times or more.
Frequently Asked Questions
How will the removal of indexation benefit affect property sellers?
The removal of indexation benefit could lead to higher taxes for property sellers, depending on when the property was acquired.
What is the impact on sellers based on the year the property was acquired?
Sellers who acquired their properties in 2001 are likely to experience the maximum increase in taxable capital gains due to the removal of indexation.
How will people planning to sell their parental property inherited in or after 2001 be impacted?
Individuals planning to sell inherited property (acquired from parents after 2000) will face a higher tax liability due to the removal of indexation.
What are the options available for people who channelise gains made in shares into real estate?
Individuals and HUFs still have the opportunity to invest in residential house property to avail tax benefits on capital gains tax on sale of non-residential assets (including shares) under Section 54F of the Income Tax Act, 1961.
Will the removal of indexation benefit lead to High Networth Individuals investing in foreign shores?
Real estate experts say that it may not entirely lead to exodus of investment, as is being suspected.
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