By Hemal Mehta
Budget 2024 has overhauled the capital gains tax rules with the overall objective of simplification in the tax regime. Will real estate transactions benefit or will they be adversely impacted? Hemal Mehta explains the pros & cons of the new rules
What are the new tax rules for property sales?
Tax on long term capital gains (LTCG) on transfer of immovable property has been reduced to 12.5% from 20%. But there is a catch: the indexation benefit on cost of acquisition and cost of improvement shall not be available for transfer on or after July 23, 2024.
Will a lower tax rate be beneficial in the absence of indexation?
It depends on the facts of each case. The illustration below demonstrates the impact of the amendment in two scenarios with different sale values.
As seen in the illustration, with all aspects being the same, other than sale consideration, in Scenario 1 (with sale consideration of `1,000), the new regime has better tax outcome and in Scenario 2 (with sale consideration of `400), the old regime has better tax outcome.
To clarify, the above comparison is just to provide context on the impact of the tax proposal as it is fact specific and going forward, tax will have to be paid as per the new regime.
Will this have an impact on the real estate sector?
Depending on the facts of each case, the proposed amendment may increase or decrease the tax outgo on real estate sale transactions. One key impact is the new regime shrinks the liquidity in case where Section 54 of the Income Tax Act, 1961, benefits are availed, which will especially impact senior citizens’ retirement planning where sale of property is considered for liquidity purposes. Also, it will be interesting to see if the proposal has an impact on real estate sales or preference of real estate from an investment perspective.
Other key proposals
Period of holding for REOT units: Period of holding for all listed securities, including units of REITs for LTCG treatment has been reduced to 12 months from 36 months (effective from July 23, 2024)
TDS on TRAon transfer of co-owned properties: Where co-owned properties are purchased, TDS at the rate of 1% will be applicable on the aggregate consideration (exceeding `50 lakh) for all co-owners put together and not on the basis of each individual co-owner.
TDS on rent: The TDS on rent paid by individual/Hindu Undivided Family (HUF) to a resident under Section 194-IB has been reduced to 2% from 5% (effective from October 1, 2024).
Rental income: The income from letting out of a house or part of the house by the owner will be chargeable to tax under the head ‘income from house property’ only. This is likely to impact house owners providing ancillary services along with the renting of the houses.
Stamp duty: The government has encouraged states to moderate high stamp duty rates universally and to explore additional reductions specifically for properties purchased by women.
The writer is partner, Deloitte India. Views are personal.
