Is the Benefit of a Lower 12.5% Long Term Capital Gains Tax in Budget 2024 Worth the Loss of Indexation For Indian Real Estate?

Balancing Act -Lower LTCG vs. Loss of Indexation

The Finance Budget 2024 proposed reducing the long-term capital gains (LTCG) tax on property from 20% to 12.5%, while simultaneously removing indexation benefits. This change has significant implications for real estate investors.

Ghar lists some of the major points:

Impact on Real Estate Deals

• LTCG Tax Reduction: The LTCG tax on property has been lowered to 12.5%, aimed at providing some relief to property owners and investors.
• Loss of Indexation: The removal of indexation benefits, which adjust the purchase price of an asset for inflation, has raised concerns. This tool has historically helped reduce taxable gains and, consequently, tax liabilities.
• Exclusion for Older Properties: Properties acquired before April 1, 2001, will still benefit from indexation.

Concerns and Considerations

• Higher Tax Liability: Without indexation, the effective tax burden may increase despite the lower LTCG rate, influencing decisions to sell properties.
• Industry Caution: Real estate experts warn about the potential negative impact on the property market due to the loss of indexation benefits.

Conclusion:

The Finance Budget 2024's proposal to lower the LTCG tax rate to 12.5% while removing indexation benefits presents a mixed bag for real estate investors. While the reduced tax rate offers some relief, the loss of indexation could lead to higher overall tax liabilities, potentially impacting the real estate market. Investors must carefully weigh these factors when making property sale decisions.