Budget 2024: Tax on sale of older property could go up

Today’s Budget was a mixed bag for the real estate sector after Finance Minister Nirmala Sitharaman removed indexation benefits used to calculate capital gains tax on property sales.

“On the one hand, the reduction in the long-term capital gains tax rate from 20% to 12.5% should boost investments over the near to medium term. On the other, the removal of indexation benefit will increase the tax incidence on property sale, especially for older properties,” says Gautam Shahi, director, CRISIL Ratings.

The removal of the indexation benefit is largely negative for all those planning to sell their old properties, says Aniket Dani, director of Research, CRISIL Market Intelligence and Analytics.

The LTCG tax on real estate has been reduced from 20% to 12.5% without indexation.

The removal of the indexation benefit on the cost of acquisition could potentially offset this gain, particularly for investors holding assets such as immovable property for a considerable duration, says Vinita Krishnan, executive director, Khaitan & Co.

Shahi, however, says the Centre’s move to persuade state governments to reduce stamp duties, especially for women home-owners, can have a positive impact. “On affordable housing, the move to provide additional one crore housing units to urban poor and middle-class families under the Pradhan Mantri Awas Yojana (PMAY) scheme, with an incremental budgetary allocation of ₹2.2 lakh crore over the next 5 years, will sustain the growth momentum in this segment,” says Shahi.

Finance Minister Nirmala Sitharaman also proposed that income from letting out of a house or part of the house by the owner, shall not be charged under the head ‘profits and gains of business or profession’ and will be chargeable to tax under the head ‘income from house property’ only.

Rental housing with dormitory type accommodation for industrial workers will be facilitated in PPP (public private partnership) mode with viability gap funding support and commitment from anchor industries.

“Government’s plan to implement a policy for rental housing market, is a big step to streamline residential renting market and can open doors to many large real estate players including foreign investors to establish large residential complexes and ensure smooth renting. Guidance to all States to rationalize stamp duty and to give more benefit for women buyers is also a huge welcome step,” says Harsh Parikh, Partner at Khaitan & Co.