Shares of the real estate pack are broadly higher, with BSE Realty holding on to gains of two percent after Centre amended the Finance Bill late last evening to allow an option of indexation relief for properties purchased before July 23.
Read More: Finance Bill amendment allows option of indexation benefit for property owners
Till August 7, the Realty Index has taken a knock of up to 9 percent since the Union Budget when the indexation benefit was removed for real estate, with Lodha Developers being the worst hit. After the revision of provisions, shares of Lodha Developers and Oberoi Realty have gained the most, rising by as much as three percent in early trade on August 7, followed by DLF and Godrej Properties.
DLF had chosen to play down the impact of removal of indexation on property sales. “The budget was obviously a very interesting budget. There has been lot of noise around indexation (removal) but once the noise is filtered out I don’t think it has too much of a bearing on the way the sales behaviour will be,” Ashok Tyagi, MD and CEO, DLF Limited, told analysts on July 26.
Experts have welcomed the move, calling it a positive development for the sector. "Good idea. Will help quell that drama. But it means any new apartment or house sold from July 23 onwards gets no indexation," said Deepak Shenoy, Founder and CEO of Capital Mind.
Niranjan Hiranandani of Hiranandani Group said, "The government’s initiative to allow taxpayers option to compute taxes at 12.5% without indexation or at 20% with indexation on real estate transactions marks a significant step forward, poised to drive investment and boost housing sales."
"We are grateful for the forward-thinking approach in implementing these beneficial measures," Hiranandani added.
Moneycontrol had earlier reported that the Centre was reconsidering its decision to remove indexation benefit on sale of property, announced by Finance Minister Sitharaman during her Budget speech.
As per the amendment, for land or property purchased before July 23 - the date on which Union Budget 2024 was presented - owners can choose between the new or the old regime to pay the Long Term Capital Gains tax applicable on them depending on the lower tax incident. The development takes away a major concern that was raised by property owners regarding increased capital gains tax burden on real estate. However, any property or real estate purchased after July 24 will be taxed only as per the new tax regime, in line with other asset classes.
A re-think on the issue began after stakeholders of real estate sector made a representation suggesting that the new tax structure could increase tax burden for home owners and negatively impact the industry.
Before Budget 2024, long-term capital gains (LTCG) from property sales were taxed at 20 percent with the indexation benefits. In the Budget, Finance Minister Sitharaman had announced the new tax regime, in which tax rate for long-term capital gains on property sales was pegged at 12.5 percent without the indexation benefit.
Indexation adjusts the purchase price of an asset for inflation and, hence, reduces the taxable capital gains. Indexation is carried out based on Cost Inflation Index as notified by the government.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
