If you own a home and intend to sell it, you probably have to pay higher taxes on the sale than you already do. Following the federal budget presented by Finance Minister Nirmala Sitharaman, most owners of real estate assets, including homes, would see an increase in capital gains tax.
The Finance Minister eliminated the homeowner indexation benefit in the 2024–25 budget. The FM has declared that the indexation condition on real estate assets will be completely removed, and the long-term capital gains tax (LTCG) rate will drop from 20% to 12.5% to streamline the procedure. As a result, most owners’ effective tax incidence on long-term capital gains (LTCG) against real estate assets will be greater, particularly for those who have owned the property for more than five years.
It is a positive development for the sector that the Finance Minister decided to remove the indexation benefit for long-term capital gains tax on real estate. The intention is clear to simplify and rationalise the tax regime. However, the removal of indexation benefits could result in a higher tax burden on real estate transactions, according to Dhruv Agarwala, Group CEO of Housing.com & PropTiger.com.
According to Piyush Bothra, co-founder and CFO of Square Yards, the measures are expected to impair real estate’s value as an asset class. “Removing the indexation advantage from LTCG for property transactions has a negative impact on the real estate market. However, he believes that simplifying tax systems in the long run is a positive step.
However, as industry individuals and the opposition party, the Indian National Congress expressed their worries, Finance Secretary TV Somanathan stressed that the indexation advantage granted till 2001 will be retained, providing some relief to property owners.
Experts such as Vimal Nadar, Senior Director & Head of Research at Colliers India, highlight the overall benefits of these initiatives. “Removal of the indexation benefit on LTCG may limit speculative investment in real estate asset classes.” This will boost end-user trust, particularly in the rapidly growing second-home market.”
According to Amit Goyal, Managing Director, India Sotheby’s International Realty, lowering the long-term capital gains tax from 20% to 12.5%. “is a positive move, even if it results in the reduction of indexation advantages. This will increase liquidity in property transactions. Investors have long demanded greater consistency in long-term capital gains tax across asset types.
