Budget 2024: Indexation Benefit Removed For Properties Bought After 2001, Government Clarifies

The government has clarified that the indexation benefit for properties bought after 2001 will be removed while retaining it for properties bought before 2001. This change is part of the proposal to reduce the long-term capital gains tax on immovable properties from 20% to 12.5%.

The proposal aims to simplify tax calculations, according to the Finance Secretary. He stated that the new rate without the indexation benefit is higher than the current rate with the indexation benefit. However, experts argue that removing the indexation benefit will significantly impact taxpayers.

Investors will pay tax on the difference between the actual cost and the sale consideration without adjusting for inflation. This change may lead to higher tax payments for sellers. Some experts believe that the removal of the indexation benefit will hinder the growth of the real estate sector.

The Finance Secretary clarified that the indexation benefit will still be applicable for properties bought before 2001. Experts from ICRA, Crisil, and other organisations have expressed concerns about the impact of this change on taxpayers and the real estate sector.

While some experts see the reduced tax rate as a positive move, others believe that the removal of the indexation benefit outweighs this benefit. The change is expected to impact the resale of properties and may lead to a higher tax burden on real estate transactions.

Anupama Reddy, vice president and co-group head (corporate ratings) ICRA, stated that despite the LTCG tax rate reduction, the removal of the indexation benefit for property sales would likely result in higher taxes. She described this as negative for the sector.

Aniket Dani, Director of Research at Crisil Market Intelligence and Analytics, agreed that while the LTCG tax reduction is positive, removing the indexation benefit negatively impacts those planning to sell old properties.

Dhruv Agarwala, CEO of Housing.com and PropTiger.com,, said that the Finance Minister's decision to remove the indexation benefit marks a significant shift for the sector. Despite the tax rate reduction, he warned it could lead to a higher tax burden on real estate transactions.

PropEquity Founder and CEO Samir Jasuja shared that the removal of the indexation benefit could hinder the real estate sector's growth and slow down the vision of achieving a $1 trillion real estate economy.

Vivek Jalan, Partner at Tax Connect, noted that LTCG taxation for real estate previously benefited from inflation-adjusted indexation. With its removal, property sellers and the real estate industry, a major employment generator, will be severely impacted. He warned that the resale market might suffer and give rise to a cash economy where sellers suppress sale values.

Former president of CREDAI Jaxay Shah said the impact of the proposed changes would be neutral if the average property return is 12% over more than four years, with inflation at 5%. However, if the return exceeds 12% with 5% inflation, there could be a tax saving under the new amendment compared to the current rate.

(With inputs from PTI.)