LTCG tweaks will drive investment & boost sales, say industry experts | Economy & Policy News

The move met with resistance and criticism from various quarters.

And on Wednesday, the government moved an amendment to the Finance Bill, 2024 in Parliament. It allowed taxpayers to avail of the old LTCG regime if the property was acquired before July 23, when the Union Budget was tabled.

A taxpayer can now calculate their LTCG tax at 12.5 per cent, without indexation, or at 20 per cent, with indexation, and pay the lower amount.

Tailor-made for every situation

Shishir Baijal, Chairman and Managing Director, Knight Frank India said that while the 12.5 per cent rate may seem immediately attractive, the decision to opt for it or the 20 per cent rate with indexation should be made after “careful consideration of individual circumstances”.

“Ideally, if a property’s value has significantly outpaced inflation, the 12.5 per cent rate might be more beneficial. However, indexation could be advantageous in cases where property appreciation is closer to the inflation rate,” he said.

Relief after shock

Industry players were relieved, just like the homebuyers.

“By ending the confusion and speculations from the Budget announcement, this move prevents potential negative impacts on market sentiment and growth in India’s second-largest employment-generating sector,” said Dhruv Agarwala, Group CEO, Housing.com & Proptiger.com, calling it a “significant step forward”.

“While this benefit won’t apply to future transactions, it gives taxpayers more time to plan the sale of their assets to maximise benefits, further boosting investment across housing segments,” he added.

Anuj Puri, chairman of the ANAROCK Group, too welcomed the move.

“This change gives homeowners flexibility in their tax liabilities when they sell their property.”

Rajeshwar Burla, Senior Vice President and Group Head, Corporate Ratings, ICRA, also said that the old regime would be more suitable in cases where returns are lower than 10 per cent. Otherwise, the new regime would be a better option where the returns are more than 10 or 11 per cent.

Meanwhile, Sanjay Sanghvi, partner in the Direct Tax Practice Group at Khaitan & Co., called the change “as a ‘prospective law’ (on a going forward basis) as opposed to being retrospective in nature as originally contained in the Finance Bill.”

Industry executives had expressed concern with the announcement in the Budget, stating that a higher tax burden could hamper the positive sentiment in the sector which has been witnessing all-time high sales.

Puri stated that this revision can potentially stimulate the residential property market because it provides clarity and implies a potential tax burden reduction.

“Homebuyers’ sentiment will improve as they have flexible options for addressing their future capital gains tax burden. Also, the anticipation of these changes can potentially cause some homeowners to sell properties sooner to benefit from the new tax regime. This will raise the overall supply of housing units available on the market, helping to keep prices in check,” he added.

Calling the amendment “rare”, Harsh Bhuta, Partner at Bhuta Shah & Co LLP said, “This will allow homeowners to enjoy the best of both worlds and minimise their tax burden when they sell the house property.”

First Published: Aug 07 2024 | 4:35 PM IST