Want to buy or sell property? Here’s how Union Budget 2024 affects your decision

The Union Budget 2024 was the most anticipated event in the country with all eyes glued to Finance Minister Nirmala Sitharaman on Tuesday (July 23) as she unveiled the Narendra Modi government’s first major policy since coming back to power in June.

And it seems that Budget 2024 has changed the real estate industry, with some opining that the new rules are for the better.

As the dust settles on Budget day, here’s a better understanding of all the major changes introduced in this sector and how it affects buyers as well as sellers.

Removal of indexation benefit

Finance Minister Nirmala Sitharaman announced the removal of indexation benefits for property sales. Before we dive deeper into how this impacts the industry, here’s a quick understanding of what is the indexation benefit.

Earlier, Indians had the option of reducing tax on profit made from selling a house by making use of what was called the ‘indexation benefit’. This indexation helped to adjust the purchase price of the asset to reflect inflation.

In simple terms, this indexation allowed sellers to pay less tax on their gains. Since indexation benefits only apply to long-term capital gains (assets held for more than two years for real estate), it encouraged investors to hold onto their properties for longer periods, leading to potentially higher profits.

Indexation made real estate a more attractive investment option.

But then why did the government remove this provision? “This will ease computation of capital gains for the taxpayer and the tax administration,” it said.

Deloitte India Partner Aarti Raote, speaking to news agency PTI said: “The indexation benefit was provided to increase the cost of the asset to the current value and the gain is then computed against the sale consideration. However, now the taxpayers will pay tax on the difference between the actual cost and the sale consideration, which will be significant,” she said.

According to her, investors will end up losing money if the adjustment for inflation is not considered.

PropEquity Founder and CEO Samir Jasuja was also of the opinion that the removal of indexation benefit on the sale of property can hinder the growth of the real estate sector and slow down the vision of achieving $1 trillion real estate economy.

According to Nehal Mota, co-founder Finnovate, was also of the opinion that the loss of indexation will make a difference.

Also read: Reason to cheer or cry? What Budget 2024 means for the middle class

Cutting LTCG on property sales

While Nirmala Sitharaman declared that indexation benefit would be removed, she did reduce the long-term capital gains (LTCG) tax rate on the sale of property from 20 per cent to 12.5 per cent.

Speaking on the same later, Finance Secretary TV Somanathan said 12.5 per cent without indexation benefit is “higher” than 20 per cent with indexation. “In 95 per cent cases, this 12.5 per cent will benefit. Due to this change, the middle class will benefit,” he said.

Buildings under construction are seen along the Mumbai skyline. While Nirmala Sitharaman has removed the indexation benefit, she has reduced the long-term capital gains (LTCG) tax rate on the sale of property from 20 per cent to 12.5 per cent. Representational image/Reuters

Amit Goyal, managing director of India Sotheby’s International Realty, welcomed this move. In a Times of India report, he was quoted as saying, “For real estate transaction, bringing down the long-term capital gains tax from 20 per cent to 12.5 per cent is a welcome step, even if it comes with the removal of indexation benefits. This will encourage more liquidity in property transactions.

Housing.com and PropTiger.com CEO Dhruv Agarwala told news agency PTI that the finance minister’s decision to remove the indexation benefit for LTCG tax on real estate marks a significant shift for the sector. “While the intention to simplify and rationalise the tax regime is clear, the removal of the indexation benefit, despite the reduction in the LTCG tax rate to 12.5 per cent, could lead to a higher tax burden on real estate transactions.”

Niranjan Hiranandani, the founder and MD of Hiranandani Group, was of the opinion that the reduction in LTCG was great for the industry. “For historical properties, which are coming into the market, they will have to pay much more for it, because indexation is sought to be withdrawn. So there is an issue of property sale, which takes place. But anyway, 90 per cent of the investor market would benefit from the reduction in the rates of capital gains tax, and that’s a very positive move as far as this is concerned,” he told CNBCTV18.

The 2001 limit

Another change that the budget brings is creating a distinct divide among property sellers based on the purchase or inheritance date of their properties, with 2001 being the critical year. As the Times of India reported, the Union Budget 2024-2025 has split property sellers into two categories: properties purchased or inherited before 2001; and properties purchased or inherited in 2001 or later.

Now as per the budget, sellers in the first category continue to benefit from indexation. They will also enjoy a reduced LTCG tax rate of 12.5 per cent, down from the previous 20 per cent. Sellers in the second category lose the benefit of indexation. They too benefit from the lowered LTCG tax rate of 12.5 per cent, but without the cushioning effect of indexation.

Finance Minister Nirmala Sitharaman in her budget speech also said that those planning to sell property worth over Rs 50 lakh involving multiple buyers or sellers, a TDS of 1 per cent would apply. Representational image/PTI

TDS on sale of Rs 50 lakh property

Finance Minister Nirmala Sitharaman in her budget speech also said that those planning to sell property worth over Rs 50 lakh involving multiple buyers or sellers, a TDS of 1 per cent would apply.

“It has been observed that some taxpayers are interpreting that the consideration being paid or credited refers to each individual buyer’s payment rather than the total consideration paid for the immovable property. Accordingly, it is proposed to amend sub-section (2) of section 194-IA of the Act to clarify that where there is more than one transferor or transferee in respect of an immovable property, then such consideration shall be the aggregate of the amounts paid or payable by all the transferees to the transferor or all the transferors for transfer of such immovable property,” as per Memorandum to Union Budget 2024.

What this means is that: if two buyers are purchasing an immovable property worth Rs 80 lakh and each buyer will become half owner in the immovable property, then, both the buyers will be required to deduct TDS at one per cent on the amount payable by them respectively even though amount payable by each buyer is Rs 40 lakh.

Immunity for proxies

Finance Minister Nirmala Sitharaman in her budget also proposed to provide immunity to those who make a true disclosure about the beneficial owner.

Amit Maheshwari, partner at AKM Global, a tax and consulting firm, told Times of India that at present proxies were penalised to the same extent as the beneficial owners. However, this change will allow for more convictions and more assets getting caught under the benami law.

At present, the offence of benami transaction is punishable with a penalty of rigorous imprisonment of one to seven years, along with a fine extending up to 25 per cent of the fair market value of the benami property. This is applicable to the owner of the benami property as well as the benamidar.

However, the Union Budget 2024 has changed this rule now.

With inputs from agencies