Substantial Tax Savings Expected for Real Estate Investors Following LTCG Rate Reduction
New Delhi, Jul 24 (PTI) – The Income Tax department has announced that a significant number of taxpayers are poised to benefit from substantial tax savings as a result of the reduction in the long-term capital gains (LTCG) tax rate within the real estate sector. The latest Budget has ushered in reduced tax rates on capital gains derived from the long-term holding of house properties, albeit at the expense of eliminating the indexation benefit available to taxpayers.
The LTCG has been revised from 20% with indexation benefit to 12.5% without indexation for the real estate domain. Previously, the indexation benefit empowered taxpayers to calculate gains arising from the sale of capital assets by factoring in inflation. According to a statement by the income tax department, nominal real estate returns typically range from 12-16% per annum, a markedly higher figure than inflation. As inflation stands at approximately 4-5% for indexation purposes, substantial tax savings are anticipated for a vast majority of such taxpayers.
Providing a comparative analysis of the advantages based on the holding period of real estate property, the I-T department confirmed that the new tax rate without indexation proves advantageous in most scenarios. For properties held for five years, the new regime becomes advantageous when the property has appreciated by 1.7 times or more. Likewise, for properties held for 10 years, it becomes beneficial when the value has increased by 2.4 times or more. The department also highlighted that for a property purchased in 2009-10, it is beneficial if the value has increased to 4.9 times or more.
The statement emphasized that the earlier tax rate is only beneficial in cases where returns are low (less than about 9-11% per annum), which it describes as unrealistic and rare in the field of real estate.
In line with the changes introduced in the 2024-25 Budget, the government has preserved the indexation benefit for taxpayers with properties acquired or inherited before 2001. Notably, the revisions to the tax rate are effective from July 23, 2024.
This development is expected to have significant implications for real estate investors, offering a promising landscape for tax savings and potentially stimulating the sector’s growth in the coming times.
