The Finance Minister of India, Smt. Nirmala Sitharaman presented the 2024-2025 Union Budget on July 23, 2024. While presenting her straight 7th budget, she emphasised the removal of the indexation benefit for calculating long-term capital gains on real estate and property investments. In this blog, we will specifically discuss the Budget 2024 impact on real estate.
A Glimpse of Real Estate Budget 2024
In the latest Union Budget, 3 crore more houses have been promised under the Pradhan Mantri Awas Yojana (PMAY) throughout the urban zones. An approximate investment of ₹10 lakh crore has been announced for this initiative. Eventually, it is expected to cater to the housing needs of 1 crore urban poor and middle-class families.
Consequently, the above-mentioned reforms will give rise to the demand for housing materials and we will experience a greater workforce in the construction sites. Besides this, there will be development of more industrial parks, highway corridors and so on, thus creating new investment opportunities for real estate enthusiasts.
Nevertheless, everything isn’t positive when considering the budget 2024 real estate highlights. The Indian Government has brought in significant changes in terms of tax implications on immovable properties.
The new regulations clearly state that properties possessed after 2001 will no longer receive indexation benefits, while those occupied before will be unaffected. This alteration is accompanied by a proposal to curb the long-term capital gains (LTCG) tax on real estate from 20% to 12.5%. It has been put forward to simplify the overall tax calculation method.
The new rule might favour sellers who benefit from price appreciation, but it could deter new investors, especially those relying on loans to finance their real estate purchases. This rule aimed to standardise capital gains across asset classes, simplifying the tax treatment. However, industry experts argue that if real estate and equities are treated equally, stamp duty should also be reconsidered, as it remains significantly higher than the Securities Transaction Tax (STT).
The Bottom Line
The budget 2024 impact on real estate has agitated many homebuyers after the indexation benefits had been withdrawn. However, the prices of properties are expected to be stable thus attracting first-time buyers. Particularly, affordable housing developers may face a temporary rise in project costs due to high demand for supplies. Hence, it will be imperative to evaluate the underlying assumptions as we proceed, to ascertain if the consequences are unfolding as anticipated.
