MUMBAI
The government’s decision to give the option to taxpayers to choose between 12.5% Long Term Capital Gain (LTCG) tax and 20% LTCG with indexation benefit for properties purchased before July 23, 2024 would be in the interest of property owners and the amendment would stimulate investment and sales, analysts said.
“It a positive development for the real estate sector. It addresses the apprehensions among property owners that they will have to shell more taxes in the absence of indexation benefit,” said Samir Jasuja, Founder and CEO of PropEquity.
“Real estate has always been an important asset class for investment and if we have to make real estate a trillion-dollar industry than lesser taxes should be introduced,” he added.
Shishir Baijal, Chairman and Managing Director, Knight Frank India said, “This move offers flexibility for sellers, who can now choose the option that best suits their financial situation and the extent of their property’s appreciation.”
“While the 12.5% rate may seem immediately attractive, the decision to opt for it or the 20% rate with indexation should be made after careful consideration of individual circumstances. Ideally, if a property’s value has significantly outpaced inflation, the 12.5% rate might be more beneficial,” he added.
“However, indexation could be advantageous in cases where property appreciation is closer to the inflation rate. This amendment is expected to stimulate investment and sales in the housing market by potentially reducing the tax burden on sellers. It reflects a progressive approach by the finance minister to encourage growth in the real estate sector,” he further said. Explaining the development Lokesh Shah, Partner, Induslaw said, “A notable change is the grandfathering of indexation benefits, to a certain extent.”
“To address concerns raised by stakeholders, the amended provisions now provide that properties transferred before July 23, 2024, will continue to be taxed at 20% with indexation benefits. However, in respect of properties acquired before this date and sold afterward, any additional tax due to the new 12.5% tax rate without indexation will be ignored,” he added.
Vishal Raheja, Founder & MD, InvestoXpert.com said, “The removal of indexation benefits on older properties significantly impacts long-term investors, particularly in mitigating the effects of inflation on capital gains.”
“Previously, indexation allowed property owners to adjust the purchase price of their assets to current inflation levels, thereby reducing the taxable capital gains upon sale. Without this benefit, sellers of older properties face higher tax liabilities, potentially diminishing the overall returns on their investments,” he said.
For instance, a property purchased 20 years ago would now attract a considerably higher tax burden due to the unadjusted capital gains, leading to reduced disposable income for reinvestment or retirement planning.
“This change is likely to alter investment strategies, compelling investors to reassess their portfolios and possibly discouraging long-term holding of real estate assets. In the broader market, this could result in increased property sales as investors seek to liquidate assets before the impact fully takes hold, thereby influencing property prices and market dynamics in the short to medium term,” he added.
Published - August 07, 2024 09:47 pm IST
