Real estate sector commends capital gains tax amendment

Real estate industry has welcomed the proposed amendment by Finance Minister Nirmala Sitharaman in the Finance Bill. The government’s initiative allows taxpayers to choose between a 12.5% tax rate without indexation or a 20% rate with indexation for real estate transactions.

Image credit: Pexels

Finance Minister Nirmala Sitharaman’s proposed amendment in the Finance Bill, which offers substantial relief on capital gains tax for property transactions, has been warmly welcomed by real estate industry leaders. They view the amendment as a positive step that will encourage investment in the real estate sector and boost sales across various housing segments.

The government’s proposed amendment marks a significant change from its earlier position, which had faced criticism for negatively impacting middle-class homeowners and the real estate sector due to the loss of indexation benefits. Officials had previously defended the new tax rate structure, arguing that the lower rate without indexation would benefit most taxpayers.

The proposed amendment allows taxpayers to choose between two tax schemes for property transactions: a lower rate of 12.5% without indexation or a higher rate of 20% with indexation, applicable to properties acquired before July 23, 2024—the date the union budget was presented. This new cut-off date replaces the earlier 2001 cut-off, which had raised concerns among long-term property owners.

Hemal Mehta, partner, Deloitte India said, “Now a resident taxpayer can opt for a tax rate which is more beneficial for properties acquired prior to July 23. This gives relief to taxpayers who can also opt for exemption under section 54 to compute and invest the long term capital gain in another residential unit.”

Additionally, the amendment will extend to unlisted equity transactions, which will now be taxed at a 10% long-term capital gains rate instead of the previously proposed 12.5%. This change is expected to stimulate investment and support growth in both the real estate and unlisted equity sectors by providing taxpayers with the option to choose the more favorable tax scheme.

On Wednesday, shares of real estate companies such as DLF, Macrotech, and Oberoi Realty rose by up to 2% following reports that the Finance Minister plans to amend the long-term capital gains tax (LTCG) rules. The Nifty Realty index gained around 1.5%, led by increases in these firms and others like Prestige and Godrej Properties.