Real estate industry leaders have applauded Finance Minister Nirmala Sitharaman's proposed amendment to the Finance Bill, aimed at providing substantial relief on capital gains tax for property transactions, reported PTI. They believe this change will spur investment and boost sales across various housing segments.

"The government's initiative to allow taxpayers the option to compute taxes either at 12.5 percent without indexation or at 20 percent with indexation on real estate transactions is a significant step forward. This relief applies to the transfer of long-term capital assets, such as land or buildings, acquired before July 23, 2024," stated Niranjan Hiranandani, Chairman of Hiranand Group and NAREDCO.

Sitharaman's proposal, presented on Tuesday, allows taxpayers involved in property transactions to choose between a lower tax rate of 12.5 percent without indexation or a higher rate of 20 percent with indexation, applicable to properties acquired before July 23, 2024, the date the union budget was presented in the Lok Sabha.

Shares of real estate companies like DLF, Macrotech, and Oberoi Realty rallied up to 2 percent on Wednesday after it was reported that the Finance Minister will amend the long-term capital gains tax (LTCG) rules proposed in the Budget.

Buying action was seen in almost all real estate stocks with the Nifty Realty index rallying around 1.5 percent led by gains in DLF, Macrotech, Oberoi Realty, Prestige, and Godrej Properties.

Hiranandani further commented, "By enabling taxpayers to choose the lower tax burden between the new and old schemes, the amendment is poised to drive investment and enhance sales across housing segments. We are grateful for the Finance Minister's forward-thinking approach in implementing these beneficial measures."

Ritesh Mehta, Senior Director/Head of Residential Services (North, East & West) at JLL India, echoed this sentiment, saying, "It is a welcoming move by the government, which will not hinder the current optimistic sentiment. This amendment will especially give relief to middle-class people who are quite sensitive about any tax policy changes and changes in financial structure. This will keep the cycle of selling and buying intact, and we will see more liquidity and optimism in the real estate sector."

WHAT ARE THE PROPOSED AMENDMENTS?

The proposed amendment will enable the taxpayers to compute taxes under both schemes. They will have a choice to pay tax under the scheme in which it is lower. July 23, 2024, is now set as the cut-off date for the calculation of the capital gains versus the earlier cut-off of 2001 that had caused a lot of concern over its impact on long-time owners of property assets.

The proposed amendment will apply not only to real estate transactions but also to unlisted equity transactions, which are done before July 23, 2024. All such transactions will be taxed at 10 percent long-term capital gains instead of the budget proposal of 12.5 percent tax.

WHAT HAPPENED IN BUDGET 2024-25?

In the 2024-25 budget presented on July 23, Sitharaman reduced the long-term capital gains (LTCG) tax on property from 20 percent to 12.5 percent while removing the benefit of indexation for properties purchased on or after April 1, 2001.

The Cost Inflation Index (CII), notified by the Central Board of Direct Taxes, is used for indexation calculation, allowing taxpayers to adjust the acquisition cost for inflation before computing capital gains, thus reducing the overall tax burden.

The government has raised Rs 2.78 lakh crore from LTCG taxes in the last five years. In the assessment year 2023-24, the Centre collected Rs 98,682 crore from LTCG, compared to Rs 86,075 crore collected in the 2022-23 assessment year.