Centre's New Tax Option For Long-Term Capital Gains Brings Relief To Property Owners: Experts

Property owners will heave a sigh of relief and market sentiments will improve with the Centre deciding to give taxpayers the option to choose between the new 12.5% long-term capital gain tax rate and the old 20% rate with indexation benefit for assets purchased before July 23, according to industry bodies.

Realtors' apex body CREDAI President Boman Irani said the recent amendment in the long-term capital gains tax and indexation benefits is a welcome move by the central government.

Finance Minister Nirmala Sitharaman, who in her budget for 2024-25 proposed to cut LTCG tax to 12.5% from 20% but without the indexation benefit, moved an amendment to the bill to give the option. Indexation benefits allow taxpayers to arrive at property cost after adjusting for inflation.

The amendment came after the new provision was criticised for raising tax incidence and disincentivizing investments in real estate.

Realtors body NAREDCO President G Hari Babu termed it as a balanced approach by the government.

"This decision is poised to bring significant relief to property owners and investors who were concerned about the removal of indexation benefits. By providing an option, the amendment addresses the needs of long-term investors who might have otherwise faced a disproportionate tax burden due to the withdrawal of indexation," he said.

The Naredco President said this move is likely to mitigate concerns around increased cash transactions and potential resurgence of black money in the sector.

Anarock Chairman Anuj Puri said this will have a very profound impact on both homeowners and aspiring homebuyers.

Housing.com CEO Dhruv Agarwala said, 'By ending the confusion and speculations from the Budget announcement, this move prevents potential negative impacts on market sentiment and growth in India’s second-largest employment-generating sector.

"Additionally, while this benefit won't apply to future transactions, it gives taxpayers more time to plan the sale of their assets to maximise benefits, further boosting investment across housing segments," he added.

PropEquity founder Samir Jasuja said this is 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. Real estate has always been an important asset class for investment and if we have to make real estate a trillion-dollar industry then lesser taxes should be introduced."

Realty firm Krisumi Corporation MD Mohit Jain said this enables property owners to strategically plan their sales, paying the lower of the two tax rates.

NeoLiv founder Mohit Malhotra said this is a progressive step that demonstrates the Centre's commitment to supporting homeowners and expanding the housing market.

Anshul Jain, Chief Executive - India, SE Asia at Cushman & Wakefield, said, "The industry was of the opinion that the new regime of 12.5% without indexation will increase tax outgo for investors and end-users of property post-sale. This also provides the government some time to reassess the real impact holistically, after considering views from other stakeholders."

Knight Frank India CMD Shishir Baijal noted that if a property's value has significantly outpaced inflation, the 12.5% rate might be more beneficial.

However, indexation could be advantageous in cases where property appreciation is closer to the inflation rate, he added.

Ritesh Mehta, Senior Director, and Head (North and West) - Residential Services and Developer Initiative, India, JLL, said this amendment will specially give relief to the middle class who are quite sensitive about any tax policy changes and the changes in financial structure.

"By maintaining the cycle of selling and buying, this can foster increased liquidity and a greater sense of optimism within the Real Estate sector," he added.

Bhavesh Kothari, Founder & CEO, Property First Realty, said it is a welcome step towards enhancing confidence in real estate investments and empowering taxpayers with choices that are in line with their financial goals.

Vijay Harsh Jha, founder and CEO of property brokerage firm VS Realtors, said the real estate sector is quite enthused with this change in policy and "we hope that real estate transactions are not impacted."