Will the Real Estate Sector Get a Boost from the New Tax Amendments?
The introduction of grandfathering provisions has brought relief to taxpayers who hold immovable property. But will this be enough to revive the real estate sector?
Real EstateTax AmendmentsLtcgCapital Gains TaxGrandfathering ClauseReal EstateAug 08, 2024
Rationalisation of capital gains tax regime
The finance minister's Budget speech had proposed to reduce the tax rate on gains from the sale of immovable assets from 20% (with indexation) to 12.5% (without indexation) for sales on or after July 23, 2024. However, this proposal was met with concern from taxpayers, who feared that the removal of indexation benefits would lead to higher tax liabilities.
Old rules for long-term capital gains tax
Before the Budget 2024 proposal, LTCG from the transfer of an immovable property were subject to tax at 20%, with the benefit of indexation. For properties acquired before April 1, 2001, taxpayers could deduct the actual cost of acquisition or the fair market value as on April 1, 2001, whichever was higher.
What Budget 2024 originally proposed
The government had originally proposed to tax LTCG at 12.5% without indexation, for all transfers taking place on or after July 23, 2024. However, this move was seen as detrimental to taxpayers, particularly those who hold immovable property.
Amendments to LTCG on property sale
The government has addressed the concerns of taxpayers by introducing a grandfathering clause. This clause provides an option to taxpayers to calculate tax on LTCG from the transfer of an immovable property acquired before July 23, 2024, either at 12.5% without indexation or at 20% with indexation, whichever is beneficial.
Impact on real estate transactions
The introduction of grandfathering provisions has set to rest the anxiety amongst taxpayers who already hold immovable property. The provisions ensure that taxpayers are not at a loss due to the removal of indexation benefits. According to the Centre's analysis, many future buyers may also not be at a loss due to the new tax rate of 12.5% without indexation.
However, it remains to be seen whether these amendments will be enough to revive the struggling real estate sector. The sector has been facing numerous challenges, including slow sales, high inventory, and regulatory hurdles.
Will these amendments be enough to bring back the mojo of the real estate sector?
About Nangia Andersen LLP
Nangia Andersen LLP is a tax consulting firm that provides expert advice on tax and regulatory matters. The firm has a team of experienced professionals who provide tailored solutions to clients across various industries.
The real estate sector has been facing numerous challenges in recent years, including slow sales, high inventory, and regulatory hurdles. The recent amendments to the Finance (No. 2) Bill, 2024, have brought significant changes to the taxation of LTCG from the sale of immovable properties. However, it remains to be seen whether these amendments will be enough to revive the struggling real estate sector.
Frequently Asked Questions
What is the new tax rate on long-term capital gains from the sale of immovable properties?
The new tax rate is 12.5% without indexation.
What is the grandfathering clause introduced in the Finance (No. 2) Bill, 2024?
The grandfathering clause provides an option to taxpayers to calculate tax on LTCG from the transfer of an immovable property acquired before July 23, 2024, either at 12.5% without indexation or at 20% with indexation.
Will the removal of indexation benefits affect taxpayers who hold immovable property?
The introduction of grandfathering provisions has set to rest the anxiety amongst taxpayers who already hold immovable property.
How will the amendments to LTCG on property sale affect the real estate sector?
It remains to be seen whether these amendments will be enough to revive the struggling real estate sector.
Who is eligible to avail of the grandfathering clause?
Individuals and Hindu Undivided Families are eligible to avail of the grandfathering clause.
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