Budget 2024: How will removal of indexation benefits for property sales impact real estate? | Stock Market News (2024)

In Budget 2024, Finance Minister Nirmala Sitharaman removed the indexation benefits previously available for property sales. Global brokerage house CLSA believes this move is negative for investments with shorter duration.

The FM also announced a reduction in Long Term Capital Gains (LTCG) Tax on property sales from 20% to 12.5%.

"With the rationalisation of the rate to 12.5%, the indexation available under the second proviso to Section 48 is proposed to be removed for the calculation of any long-term capital gains, which is presently available for property, gold, and other unlisted assets. This will ease the computation of capital gains for the taxpayer and the tax administration," the budget document stated. The new norms are applicable with immediate effect, which is from July 23, 2024 onwards.

CLSA noted that this change is unlikely to affect end-users who sell their existing house to reinvest in a new one. However, it will impact investors who sell their property investments to reinvest in other asset classes. "We believe the impact of this new regime is likely to be negative for investors with a holding period of less than 5 years and where property price appreciation is moderate (less than 10% per annum)," the brokerage stated. The move aims to rationalise taxes across all financial and non-financial assets.

Conversely, CLSA points out that the new regime would be neutral or marginally beneficial for investments with longer holding periods (over 10 years) and where property price appreciation exceeds 10% per annum. It further believes markets like Bangalore, Hyderabad, and Pune, which are end-user driven, will be the least impacted. In contrast, markets like NCR and Mumbai, with higher investor activity, are likely to be adversely affected. Additionally, there will be no impact on super-luxury apartments with ticket sizes over ₹10 crore since last year's budget capped the indexed cost of acquisition at ₹10 crore.

Indexation adjusts the purchase price of an investment to account for inflation, effectively reducing taxable profits. Without indexation, the taxable income from long-term capital gains increases, leading to higher tax liabilities for investors.

Also, the Pradhan Mantri Awas Yojna (PMAY) urban allocation for FY25 is at ₹30,170 crore. This should benefit affordable and mid-income housing players like Sobha, Prestige Estates, Sunteck Realty, Godrej Properties, it predicted.

According to the brokerage, under the new regime, the LTCG tax incidence is higher when the holding period is shorter (less than 10 years) and property price appreciation is moderate (less than 10% per annum). Conversely, for investors holding the property for a longer duration (10 years and more) and experiencing healthy property price appreciation (over 10% per annum), the LTCG tax in the new regime would be neutral or marginally beneficial.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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First Published:

24 Jul 2024, 12:55 PM IST