Realty stocks surge as govt rolls back indexation proposal on real estate

Shares of real estate companies such as DLF, Godrej Properties, Dilip Buildcon, NBCC, rallied up to 5% in opening trade on Wednesday as investors cheered the government’s decision to roll back indexation proposals on real estate. The move will provide relief to taxpayers on long-term capital gains (LTCG) tax on real estate properties by giving them the option to choose between 20% and 12.5% tax rates.

Cheering the news, BSE realty index surged over 3% in early trade today, with all sectoral stocks, barring Sobha and Brigade, trading in positive terrain. The sectoral heavyweights Macrotech Developers (Lodha), DLF, Oberoi Realty, Godrej Properties, Prestige Estates Projects, and Sunteck Realty gained in the range of 2-5%.

Among others, NBCC (INDIA), NCC, Indiabulls Real Estate, Ashoka Buildcon, D B Realty, Dilip Buildcon, and HCC also rose up to 3%.

Meanwhile, the Indian equity benchmarks BSE Sensex and NSE Nifty were trading higher by 0.8% at the time of reporting.

In the Union Budget 2024, FM Sitharaman proposed to remove indexation benefits used to calculate capital gains tax on property sales. The LTCG tax on real estate was reduced from 20% to 12.5% without indexation. The government faced a massive backlash on the decision from the real estate industry and political parties during the discussion on the general budget in the parliament.

As a result, the FM on Tuesday moved an amendment to the Finance Bill 2024, granting the option to pay LTCG tax rate of 12.5% without indexation or 20% with indexation on property acquired before 23 July 2024.   

Industry has welcomed the development, saying that it will provide relief to taxpayers. “The amendment related to tax on long term assets being immovable properties is a welcome move.  Now a resident taxpayer can opt for a tax rate which is more beneficial for properties acquired prior to 23 July 2023.  This gives relief to taxpayers who also opt for exemption u/s 54 to compute and invest the long term capital gain in another residential unit,” says Hemal Mehta, partner, Deloitte India.

“This will quell taxpayer concerns around losing indexation benefits as a tradeoff for lower long term capital gains tax rate. Taxpayers can choose the more beneficial regime and should not be worse off because of change in law. Concerns around taxation of inflationary gains in respect of immovable property acquired prior to change in law have been addressed,” says Gouri Puri, partner, Shardul Amarchand Mangaldas and Co.

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