New LTCG Tax Options Boost Real Estate Market

The government's revised budget announcement allows taxpayers to pick between a 12.5% Long-Term Capital Gains (LTCG) tax rate without indexation and a 20% rate with indexation, for properties purchased before July 23, 2024. This will have a very profound impact on both homeowners and aspiring homebuyers.

Homeowners: This change gives homeowners flexibility in their tax liabilities when they sell their property. For properties held over a long period, where inflation has majorly raised the property's value, opting for the 20% tax rate with indexation would be beneficial. Indexation adjusts the purchase price for inflation, potentially reducing the taxable gain and overall tax liability.

For properties held for shorter periods or in low-inflation periods, the 12.5% rate sans indexation could be more beneficial and result in a lower tax burden. 

Homebuyers: This revision can potentially stimulate the residential property market because it provides clarity and implies potential tax burden reduction. Homebuyers' sentiment will improve as they have flexible options for addressing their future capital gains tax burden. This will result in higher demand, particularly in markets where property values have been seen to rise significantly.

Also, the anticipation of these changes can potentially cause some homeowners to sell properties sooner to benefit from the new tax regime. This will raise the overall supply of housing units available on the market, helping to keep prices in check.

As per ANAROCK Research, H1 2024 saw total sales of nearly 2.51 lakh units across the top 7 cities, 9% more than the same period last year (H1 2023). Given that Q2 2024 saw sales tapering due to the election heat and the increased prices across cities, the new tax imposed by the government in the budget was considered a dealbreaker for many. Now, with the government giving these options to the homebuyers, housing sales momentum will continue unimpeded.

Mr. Samir Jasuja, Founder and CEO of PropEquity, said, "The government's decision to give the option to taxpayers to choose between 12.5 per cent LTCG and 20 per cent LTCG with indexation benefit for properties purchased before July 23, 2024 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 than lesser taxes should be introduced."

Mr. Sanjoo Bhadana, Founder & MD, 4S Developers said, "The decision provides flexibility to property owners, allowing them to carefully evaluate their financial situation and select the tax option whenever they plan to sell. It has removed the apprehensions among property owners that the new LTCG would have led to higher tax outgo. Now, depending on individual circumstances, one option might offer significant tax savings compared to the other.  The amendments in the Finance Bill certainly adds a layer of positivity for the real estate market."

Mr Vijay Harsh Jha, founder and CEO, VS Realtors (I) Pvt Ltd, a Gurugram-based property brokerage firm, mentioned, "The amendment in LTCG has given home owners the option to make an informed choice by opting for a method that involves a lesser tax outgo. The real estate sector is quite enthused with this change in policy and we hope that real estate transactions are not impacted."