Indexation removal on real estate won't hike tax burden, has limited impact

New Delhi, July 25: Amid the growing chatter over the removal of indexation benefit in the long-term capital gain (LTCG) calculation, Finance Minister Nirmala Sitharaman has reiterated that the move is not a “revenue-raising measure” and will not lead to a higher tax burden on real estate transactions.

According to the Finance Ministry, the new LTCG regime will benefit taxpayers in “almost all cases” through substantial tax savings.

The Union Budget 2024 has announced a reduction in the LTCG tax rate from 20 per cent with indexation benefit to 12.5 per cent without indexation.

According to the Finance Minister, most people will be “better off under the new capital gains tax structure”, despite the indexation benefit being withdrawn for property.

Industry and market experts also explained that the removal of indexation benefits for real estate will have a limited impact on real estate investors.

According to a note by JM Financial Institutional Securities, this new change should impact returns by an average of 125-200 bps per annum with effects varying across different micro-markets (depending on historical price growth) and holding periods (cost indexation also varies across periods).

The report mentioned that the impact of this change should be limited.

According to market experts, the whole idea of the government is to simplify the capital gains framework.

There are multiple holding periods and tax rates, which are in the current LTCG framework that have been reduced and streamlined.

The LTCG tax rate is now lower and around 95 per cent of sellers will not be negatively affected.

According to experts, investors should also focus on buying stocks which can deliver superior returns.

In the present context, FMCG stocks look attractive from the valuation perspective they mentioned.

The concept of indexation has also gone away from mutual funds (MFs).