Budget's tax cut benefit overshadowed by indexation losses

Mixed data for real estate investors

The Union Budget 2024 has introduced significant changes in the taxation of property, reflecting the government's efforts to diversify the investment landscape. One of the notable adjustments is the reduction of the Long-Term Capital Gains (LTCG) tax rates. While this reduction may be aiming to attract more investment into property and bring in tax rationalisation compared to equity asset class, removal of the indexation benefit is a dampener.

Before the budget, property sales were subject to a 20 percent LTCG tax rate with the indexation benefit. The new tax rate of 12.5 percent comes without the indexation benefit, which is a significant change. The removal of the indexation benefit is disappointing for long-term investors who have relied on it to mitigate the impact of inflation on their gains. Real estate investments, particularly which are long-dated, are expected to have higher effective capital gains tax on account of the new provision.

The immediate impact of these changes is visible in the real estate sector. The stocks of major real estate companies such as DLF Ltd, Godrej Properties, Oberoi Realty, and Brigade Enterprises have dropped by 3-5 percent by the end of the day. While the reduced tax rate aims to attract investment, the elimination of the indexation benefit could pose challenges for long-term holders, potentially leading to higher tax liabilities and affecting investment decisions in the real estate sector.