Budget 2023: Will Rs 10 crore cap on capital gains deductions hit redevelopment in Mumbai realty market?

 Will not impact redevelopment

However, experts maintain that higher capital gains tax will not halt the pace of redevelopment in Mumbai.

Amit Goenka, MD and CEO at Nisus Finance, told Moneycontrol, "The capital gains tax is essentially for ultra-luxury and luxury apartments. However, it in no way impacts redevelopment in Mumbai. The only negative impact is that landlords selling their lands for redevelopment and having more than Rs 10 crore as capital gains will have to pay a tax of around 20 percent."

He added, "But this will not stop landlords from selling their lands considering they will change modalities or work out agreement value accordingly. They might not opt for outright liquidity that might result in above Rs 10 crore capital gains but take a property in exchange for their land. There are options of joint development, joint venture, development rights too where there will be no exchange of money but profits on property."

Also read: Budget 2023: Home loan interest deduction cannot be part of acquisition cost while calculating capital gains

 More than 2,000 projects undergoing redevelopment in Mumbai:

A developer, who did not wish to be named, said, "There are more than 2,000 projects undergoing redevelopment in Mumbai. This number will only increase in the coming months in case the Maharashtra government decides to give premium and stamp duty waivers."

He added, "But the capital gains tax will not stop landlords from going ahead with redevelopment. There is no landlord in Mumbai having tenants on his or her land and not wanting to go for redevelopment by issuing development rights or outrightly selling the land."

Also read: Budget 2023: Builders with mixed portfolio may not be impacted by cap on capital gains deduction

 Landlords can structure deal to optimise capital gains tax

According to experts, landlords selling land can optimise tax by structuring the deal.

Aditya Zantye, a chartered accountant, said, "For example, a landlord has sold his or her land for Rs 25 crore and his original cost of purchase of that land was Rs 10 crore, he or she will have to pay tax on Rs 5 crore. As per Finance Bill, 2023, the maximum deduction claimed under section 54F is Rs 10 crore."

"Hence, even though the amount is fully invested in property, the capital gain tax would be on Rs 5 crore as the capital gains are Rs 15 crore. The same can be optimised through proper structuring of the deal. However, tenants and developers during redevelopment do not need to worry about the Rs 10 crore cap," he added.

 What did the Budget say?

Presenting the Budget for 2023-24, Finance Minister Nirmala Sitharaman had said, "For better targeting of tax concessions and exemptions, I propose to cap deduction from capital gains on investment in residential houses under sections 54 and 54F to Rs 10 crore."

 What developers said about the tax

Moneycontrol had reported that developers with a mixed portfolio of projects ranging from affordable to luxury homes may not be affected much by the proposal to cap deductions from capital gains on investments in residential houses, according to experts and real estate developers.

Niranjan Hiranandani, a real estate developer and vice chairman of NAREDCO, had told Moneycontrol that sales may not be impacted due to the cap and very few individuals are likely to be affected. “Homebuyers at the individual level might be impacted but not the industry at large,” Hiranandani said.