The Union Budget for 2024 has introduced notable changes to real estate taxation, causing a stir among homeowners and investors.
The key updates include a reduction in the long-term capital gains (LTCG) tax rate from 20% to 12.5% and the removal of the indexation benefit used to adjust property costs for inflation, as per reported by the Money Control this report delves into how these adjustments affect property owners, with insights drawn from data across various real estate markets.
Key Changes in Tax Structure
The 2024 budget has revised two critical aspects of real estate taxation:
- Reduction in LTCG Tax Rate: The LTCG tax rate has been reduced from 20% to 12.5%. This change is aimed at lowering the tax burden on long-term investments in real estate.
- Removal of Indexation Benefit: The indexation benefit, which allowed property owners to adjust the purchase price for inflation, has been eliminated. This change could lead to increased taxable capital gains for many property owners.
An analysis was conducted to assess the impact of these changes on homeowners in six major localities: Greater Kailash, Vasant Vihar, and Defence Colony in South Delhi; Bandra West in Mumbai; and Koramangala in Bengaluru. Property price data from 2001, 2011, 2016, and 2022 was used to evaluate the effects of the new tax rules.
Impact on Properties Purchased in 2011
Properties acquired in 2011 are significantly impacted by the new tax rules:
- Koramangala, Bengaluru: A property purchased in 2011 and sold in 2022 would see a 69% increase in tax liability. The tax would rise from Rs 11 lakh under the old regime to Rs 19 lakh under the new rules.
- Bandra West, Mumbai: In Bandra, the tax burden has shifted dramatically. Previously, a capital loss of Rs 15 lakh could be adjusted against other liabilities. Under the new regime, the tax liability increases to Rs 59 lakh.
Impact on Properties Purchased in 2016
For properties bought in 2016, the new tax rules also result in increased tax liability:
- Greater Kailash and Defence Colony, South Delhi: Homeowners face a 150% increase in tax liability. For example, a property in Greater Kailash that was purchased in 2016 would now incur a tax of Rs 50 lakh compared to Rs 20 lakh previously.
- Vasant Vihar: The tax burden increases by 66.7% for properties bought in 2016.
- Koramangala: Tax liability rises by 25% for properties bought in 2016 due to significant appreciation in property values.
Impact on Properties Purchased in 2001
Older properties, purchased in 2001, tend to benefit from the new tax rules:
- Greater Kailash: A property bought in 2001 and sold today would incur 23% less tax. This trend is similar in Defence Colony and Vasant Vihar.
- Bandra West: In Bandra, however, the tax burden has increased by 9.5%.
Unique Case of Bandra
Bandra presents a unique situation:
- Capital Losses to Capital Gains: Properties in Bandra that would have previously resulted in capital losses now face significant capital gains. For a property acquired in 2011, the tax burden has shifted from a loss of Rs 15 lakh to a gain of Rs 60 lakh. Properties bought in 2016 also see considerable tax increases.