The Indian government has provided significant relief to homeowners by amending the long-term capital gains (LTCG) tax provisions for immovable properties in the Finance Bill 2024. Passed by the Lok Sabha on August 7, the amendment offers taxpayers the option to choose between a new, lower tax rate or the existing regime that includes a higher rate with the benefit of indexation.
Under the revised legislation, taxpayers can now select a 12.5% LTCG tax rate without indexation or a 20% rate with indexation for properties purchased before July 23, 2024. This choice is seen as a move to encourage investment in the real estate sector by potentially lowering the tax burden on property sellers.
Vimal Nadar, Senior Director and Head of Research at Colliers India, welcomed the amendment, stating, “The government’s decision not to enforce the revised taxation rules on long-term capital gains arising from the sale of land and buildings retrospectively is expected to boost investor and homeowner sentiment, benefiting the real estate sector as a whole.” Nadar emphasized that this change comes at a crucial time when housing sales are stabilizing at higher levels than the past average, and it will help alleviate concerns regarding the taxability of capital gains.
The amendment has been positively received by real estate and tax experts, who believe it will stimulate the housing market by offering more flexible tax options. Anuj Puri, Chairman of Anarock Group, explained that the new provisions provide homeowners with greater flexibility in managing their tax liabilities when selling their properties. “For properties held over a long period, where inflation has significantly increased the property’s value, opting for the 20% tax rate with indexation would be beneficial,” Puri said. “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 without indexation could be more advantageous, resulting in a lower tax burden.”
Puri further noted that the amendment could potentially stimulate the residential property market by reducing the tax burden on sellers and providing clarity on capital gains tax. This increased flexibility is likely to enhance homebuyers’ sentiment and drive higher demand, particularly in markets where property values have risen significantly.
Shishir Baijal, Chairman and Managing Director of Knight Frank India, also praised the amendment, describing it as a progressive approach by the finance minister to promote growth in the real estate sector. “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,” Baijal said. He added that while the 12.5% rate may initially appear attractive, the decision to opt for it or the 20% rate with indexation should be made after careful consideration of individual circumstances.
The amendment is expected to provide significant relief to the middle class, who are particularly sensitive to tax policy changes. Ritesh Mehta, Senior Director and Head (North and West) of Residential Services and Developer Initiatives at JLL India, highlighted that by maintaining the cycle of selling and buying, the amendment could foster increased liquidity and optimism within the real estate sector.
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Anshul Jain, Chief Executive for India, SEA, and APAC Tenant Representation at Cushman and Wakefield, also welcomed the government’s decision to provide taxpayers with the option to choose between the two tax regimes. He emphasized that this flexibility is a positive step for homeowners and investors.
The amendment to the LTCG tax provisions was introduced by Finance Minister Nirmala Sitharaman, who initially proposed lowering the LTCG tax on real estate to 12.5% from 20% in her Budget for 2024-25, but without the indexation benefit. On August 7, she moved an amendment to the Finance Bill to give taxpayers the option to choose between the two regimes. The indexation benefit allows taxpayers to adjust the purchase price of the property for inflation, thereby reducing the taxable gain.
The major change in the bill pertains to the restoration of the indexation benefit for properties purchased before July 23, 2024. Under the new scheme, individuals or Hindu Undivided Families (HUFs) who bought houses before this date can opt to pay LTCG tax at the rate of 12.5% without indexation or claim the indexation benefit and pay 20% tax.
The Lok Sabha approved the Finance Bill 2024 with 45 official amendments by voice vote. The bill will now proceed to the Rajya Sabha for further discussion.
In her response to the discussion on the Finance Bill, Finance Minister Nirmala Sitharaman stated that the amendment regarding LTCG tax on real estate is intended to ensure that there will be no additional tax burden on the sale of real estate. “We did not remove the indexation benefit on LTCG tax to increase revenue; rollover provision exists if capital gains are invested in new properties,” she said. The amendment allows taxpayers to compute their tax liability under the old system or at reduced rates without indexation and pay the lower of the two.
