Government provides choice for LTCG tax rates, eases real estate concerns

LTCG tax rates: In a move expected to boost market confidence and provide relief to property owners, the government has introduced an option for taxpayers to choose between the new 12.5 per cent long-term capital gains (LTCG) tax rate or the previous 20 per cent rate with indexation benefits for assets acquired before July 23. This decision comes after criticism that the original proposal, which cut the LTCG tax rate but removed indexation benefits, would unfairly burden long-term investors.

The amendment allows taxpayers to select the tax rate that offers the most financial benefit, addressing concerns that the elimination of indexation would lead to higher tax liabilities and potentially deter investment in real estate. Finance Minister Nirmala Sitharaman proposed the new 12.5 per cent rate in her 2024-25 budget but faced backlash for the associated loss of indexation, which adjusts the cost of assets for inflation.

Boman Irani, President of the Confederation of Real Estate Developers' Associations of India (CREDAI), welcomed the government’s revised approach. He described the change as a positive development that acknowledges the needs of long-term investors and provides clarity on tax obligations.

G Hari Babu, President of the National Real Estate Development Council (NAREDCO), praised the government’s decision as a balanced solution. He noted that the amendment addresses concerns about increased cash transactions and the potential resurgence of black money in the sector. 

Anuj Puri, Chairman of Anarock, and Dhruv Agarwala, CEO of Housing.com, both highlighted the amendment’s potential to positively impact both current homeowners and prospective buyers. They emphasised that the choice between tax rates will allow for better strategic planning and potentially stimulate growth in the housing sector.

PropEquity founder Samir Jasuja and Krisumi Corporation MD Mohit Jain also voiced their support, noting that the new policy enables property owners to plan their sales more effectively and aligns with the goal of making real estate a more attractive investment.

However, Knight Frank India CMD Shishir Baijal and JLL Senior Director Ritesh Mehta pointed out that the benefit of the 12.5 per cent rate versus indexation will vary based on individual property appreciation rates. Baijal suggested that properties with values significantly above inflation might find the new rate more advantageous, while indexation could be better for properties with appreciation close to inflation.

(with PTI inputs)