New Delhi: In a move set to impact investors across various asset classes, the government has announced a uniform long-term capital gains tax rate of 12.5% in the Union budget 2024-25. While this may seem like a moderate increase for equity investors, who will now pay an additional 2.5%, the real impact will be felt in other asset classes, particularly real estate.
Previously, real estate investors enjoyed a 20% tax rate with indexation benefits, which allowed them to adjust their purchase price for inflation and reduce their tax liability. However, with the removal of indexation benefits, the effective tax rate for real estate investors will now be significantly higher.
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Experts warn that the tax outflows on the sale of real estate will be substantial, potentially leading to a surge in tax liabilities for investors. This change is likely to have far-reaching consequences for the real estate market, as investors reassess their portfolios and strategies in light of the new tax regime.
Disastrous budget. I’ll tell what is relevant for investors:
Long term capital gains for all asset classes is going to be 12.5%. You may worry about your stocks and equity funds. Actually that is very less of your concern. You pay 2.5% more than earlier now.
What is important…
— D.Muthukrishnan (@dmuthuk) July 23, 2024
Most important is indexation on real estate gone. Now if you bought a property in 2006 for 25 lacs and plan to sell the same now. earlier you woulh have got benefit of indexation by way of inflation index, is now gone. So now if you sell for 2.5 crores , you shall pay LTCG on…
— Renuka Jain (@RenukaJain6) July 23, 2024
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People may not realise what removing the indexation benefit on sale of property means until they actually sell and see the impact . Huge blow to real estate holders. The Budget has taken even the one element that made this asset attractive!
Advertisement— Dinesh Unnikrishnan (@Dinesh_Unni) July 23, 2024
This one is huge for Real Estate!!!
Earlier long term capital gains on property gains were taxed at 20% (with indexation)
Now it has been proposed at 12.5%, but without Indexation benefit
Could be hugely negative for those holding Real Estate for decades pic.twitter.com/hP9mTrAjQu
— Gaurav Gupta | Realtor (@YourRealAsset) July 23, 2024
Similarly, this budget has introduced significant changes to the taxation of gold investments. The holding period for gold to qualify as long-term capital gains has been reduced from 36 months to 24 months. Additionally, the long-term capital gains (LTCG) tax rate on gold has been lowered to 12.5%. However, the indexation benefit, which allowed for inflation adjustment while calculating LTCG, has been removed.
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Previously, gold investors could claim indexation benefits to reduce their taxable capital gains by adjusting the cost of acquisition according to the notified cost inflation index. Now, investors will pay a flat 12.5% tax rate on LTCG from gold sales after a holding period of 24 months, without the benefit of indexation.
Interestingly, while the Bharatiya Janata Party (BJP) had labelled allegations of imposing an “inheritance tax” on the Congress party during the Lok Sabha polls, several social media users are calling the removal of indexation benefits from real estate as “indirect inheritance tax”.
