According to analyst at Brickwork Ratings, removal of indexation benefits announced in the Union Budget 2024 could significantly impact the Indian real estate sector, potentially increasing tax burdens and causing market slowdowns. The long-term outcomes remain uncertain, and stakeholders must adapt strategies to monitor trends and mitigate the new regulations.
IMPACT OF REMOVAL OF INDEXATION ON REAL ESTATE SECTOR
The Union Budget 2024, announced by Finance Minister Nirmala Sitharaman, proposes the removal of the indexation benefit for homeowners, which allows them to adjust property prices for inflation, impacting India's real estate sector.
Indexation adjusts asset purchase prices based on inflation, reducing taxable gains. However, the removal of this benefit may increase the tax burden for sellers. The new LTCG tax rate is 12.5%, reduced from 20% but without indexation benefit.
Potential Impacts on the Real Estate Sector
Removal of indexation benefits could increase tax burdens for sellers
Potential secondary market slowdowns may occur
Long-term outcomes remain uncertain
Government’s intention to simplify tax regime commendable
Potential increase in tax burdens for property owners
Discouragement of investment, making real estate less attractive
Secondary market slowdown due to seller hesitation
Potential short-term property price stagnation or decline
Stakeholders must monitor trends and adapt strategies to mitigate market adjustments
Incentivizes under-the-table cash transactions to offset higher tax burdens
Counters government efforts to formalize real estate sector
Increases property prices, transferring tax burden onto buyers
Long-term effects on market dynamics could be neutral or positive
Heritage Properties Impact
Owners may face higher tax burden upon sale due to extended holding periods
Absence of indexation prevents inflation adjustment, potentially discouraging sales
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