![Millennials driving the real estate growth story in India Millennials driving the real estate growth story in India.](https://data1.ibtimes.co.in/en/full/800813/millennials-driving-real-estate-growth-story-india.jpg?w=824&h=449&l=50&t=40)
The Indian government has unveiled a new capital gains tax regime in the Union Budget 2024, leading to significant changes in the real estate sector. The long-term capital gains tax (LTCG) on property sales has been reduced from 20 per cent to 12.5 per cent.
However, the indexation benefits on real estate, gold, and other unlisted asset classes have been removed. Indexation is a process that adjusts the purchase price of an asset for inflation, reducing taxable profits and tax liabilities. The removal of this benefit could lead to increased taxes for taxpayers despite the lower LTCG rate.
This change is part of the government's efforts to simplify the capital gains tax regime. The aim is to ease computation for taxpayers and tax administration. However, the new tax regime has been met with mixed reactions. Some experts believe that the new tax rate at 12.5 per cent (without indexation) would be better than the previous regime (20 per cent with indexation) if the property is held longer as an asset than used just to rotate money every few years.
Harsh Bhuta, Partner, Bhuta Shah and Co LLP, told IANS that the reduced rate for LTCG would significantly reduce the tax burden on the sale of immovable properties, providing a big impetus to the real estate sector.
![Centre convenes all-party meet today ahead of Budget Session Centre convenes all-party meet today ahead of Budget Session](https://data1.ibtimes.co.in/en/full/800735/centre-convenes-all-party-meet-today-ahead-budget-session.jpg?w=298&h=225&l=50&t=40)
However, the impact of the decision will not be the same for all property sellers. Those who bought property as recently as in 2018-2019 or at very low cost will benefit from the Budget 2024 changes, while others will be adversely affected. Sharad Kohli, a tax expert, explained that the indexation was less useful for those who bought property recently, as the inflation of 5-6 per cent over that short period does not make much of a difference. However, the cut in long-term capital gains tax will significantly benefit them.
The changes in the tax regime are part of the government's broader efforts to simplify the approach to taxation, especially for capital gains. Finance Minister Nirmala Sitharaman said that the average taxation has come down, encouraging investment in the market. The taxation of capital gains has undergone significant streamlining in the Union Budget 2024 with respect to holding period and tax rates. There will only be two holding periods -- 12 months (for listed securities) and 24 months (all other securities) to determine short-term and long-term capital gains.
The Union Budget 2024 has also brought about changes in other sectors. Shares of shrimp and seafood companies surged by up to 20 percent after Finance Minister Nirmala Sitharaman announced a significant proposal to support shrimp farming and marketing. The government has also allocated a 12.9 per cent share of the total Budget for defence, in light of increasing conflicts around the world and border skirmishes.
![Union Budget OF 2024-2025 Union Budget](https://data1.ibtimes.co.in/en/full/800225/union-budget.jpg?w=559&h=342&l=50&t=40)
The changes in the tax regime also extend to mutual funds. The tax treatment of various mutual fund categories like hybrid funds, gold ETFs, and fund of funds has been clarified. Hybrid funds with at least 65% exposure to equity can now claim LTCG benefits after holding for over 24 months. Hybrid funds with 35-65% equity exposure will lose indexation benefits if held for more than three years. Gold mutual funds, ETFs, and fund of funds are now under the LTCG tax regime.
The Union Budget 2024 has brought about significant changes in the tax regime, particularly in the real estate sector. While the reduction in the LTCG tax rate is expected to boost the real estate sector, the removal of indexation benefits may increase the tax burden for some property sellers. The changes are part of the government's broader efforts to simplify the approach to taxation and encourage investment in the market. These changes, while significant, are part of the government's ongoing efforts to streamline the tax system and encourage economic growth.