Real Estate Sector Warns Against Indexation Benefit Removal for Long-term Capital Gains

Industry leaders caution that eliminating indexation benefits for long-term capital gains in real estate could hamper sector growth, raising tax burdens on heritage homes and long-held properties. Despite government assurances, experts highlight potential adverse impacts.

The real estate sector has raised concerns about the government's proposal to eliminate indexation benefits for long-term capital gains, warning it could harm the sector's growth.

Niranjan Hiranandani, Chairman of NAREDCO, noted that this move could significantly impact property owners holding assets for over ten years. Heritage home owners, in particular, may face steep tax burdens upon sale due to the inability to adjust the property's cost basis for inflation, resulting in higher taxes for those selling long-held assets.

The budget for 2024-25 proposes a flat 12.5% tax on capital appreciation from property sales, excluding indexation benefits. Despite the Income Tax department's disagreement, claiming real estate returns outpace inflation, experts state that in some cases, property returns fall below inflation rates, especially over extended periods. Ritesh Mehta of JLL added that the removal of indexation benefits could deter secondary market sellers, despite lower LTCG rates, but first-time homebuyers remain unaffected. The new regime, simplifying tax structures, could benefit new investors and ease compliance.

The industry remains cautiously optimistic that properties held for more than two years could become more appealing due to the lower long-term capital gains tax. However, the government and industry must navigate these changes carefully to ensure continued growth and stability in the real estate market.

(With inputs from agencies.)