Union Budget 2024: The Union Budget 2024, which was tabled in parliament on July 2023 by Finance Minister Nirmala Sitharaman, gave a set of shock to investors investing in the stock market and real estate as well. Though, the finance minister revised the tax slab, which will indeed give some relief to salaried individuals and the middle class, announcements like an increase in capital gain taxes and the abolition of the benefit of indexation will lower the morale of investors.

The Finance Minister announced the abolition of the benefit of indexation in long-term capital gains on property in the Union Budget. This will have the greatest impact on the middle class. This means that if a person sells his house, he will not be able to use indexation to calculate the capital gains from it.

Union Budget 2024 Announcements: Finance Minister Nirmala Sitharaman declared in the Union Budget 2022-23 that the benefit of indexation would no longer apply to long-term capital gains on immovable property. This will mainly affect the middle class because if a person sells his home, he will be unable to use indexation to compute the capital gains from it.

Let us comprehend how the abolition of indexation will have an impact on real estate investment.

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New Changes

After the announcements were made, several experts stated that due to the abolition of indexation benefits in the budget, more long-term capital gains tax would be levied on the sale of a house or real estate property. Earlier, when indexation benefits were available, a 20% tax was levied on long-term capital gains on the sale of property. In the new income tax regime, however, no indexation benefit will be available on long-term capital gains on the sale of property, and a 12.5% tax will be levied on the gains.

How was tax calculated previously?

Let's understand it with an example, imagine that you bought a property in the financial year 1991-92. You bought it for 20,00,000. You sold it in 2009-10 for 80,00,000. If there is an indexation benefit, the purchase price of the property will be adjusted for inflation. This will increase the purchase price of the property to Rs 63.51 lakhs. Now, if you subtract Rs 63.51 lakhs from Rs 80 lakhs, the capital gain comes to Rs 16.49 lakhs. A 20% tax will be imposed on this, bringing the total tax to Rs 3.29 lakhs.

How will the tax be calculated now?

Let's now calculate the long-term capital gains on this property without the indexation benefit. We must recall that the Finance Minister said on July 23 that after the indexation benefit is eliminated, a 12.5 percent tax would be imposed on long-term capital gains. According to this, Rs 20 lakhs will be subtracted from Rs 80 lakhs in the new income tax regime. As a result, the capital gain will be Rs 60,000. By imposing a 12.5 percent long-term capital gains tax on this, the total tax will be Rs 7.5 lakhs. This is far higher than the capital gains tax with indexation benefits.

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Industry Reaction:

Sanjay Chatrath, Managing Partner, Incuspaze, said, "We welcome the initiatives announced in the Budget 2024-25, which are set to significantly impact the real estate sector. The government's continued focus on infrastructure development and urban planning will facilitate the expansion of flexible workspace solutions across the country. The retention of infrastructure spending at Rs 11.1 trillion, equivalent to 3.4% of GDP, and the allocation of ?1.5 trillion for interest-free loans to states for infrastructure spending are commendable steps that will drive growth in the sector."

"The significant investment by the Central Government over the years in building and improving infrastructure has had a strong multiplier effect on the economy. Maintaining strong fiscal support for infrastructure over the next five years will further enhance this impact. The encouragement for states to provide similar support, backed by long-term interest-free loans, will ensure that infrastructure development remains a priority across the nation," he said.

"Moreover, the promotion of private investment in infrastructure through viability gap funding and enabling policies will create a conducive environment for further growth. The development of Digital Public Infrastructure (DPI) applications for credit will also support the digital and technological advancements necessary for the future of flexible workspaces. These measures, along with the clarification on GST and electricity charges, are expected to streamline operations and reduce ambiguities, ultimately benefiting our clients by providing more cost-effective and transparent service structures. We are confident that these initiatives will not only drive growth in the flexible workspace industry but also contribute to the broader economic development of emerging urban centers," Chatrath added.

Ramesh Ranganathan, CEO, K Raheja Corp Homes, highlighting his views on the Union Budget 24-25 and its impact on the real estate sector, said, "The budget announcement gives a boost to India’s real estate industry with the government's decision to invest ?10 lakh crore under the PM Awas Yojana-Urban, aimed at addressing the housing needs of 1 crore urban families. This strategic investment is a game-changer for the housing market and bolsters the construction industry by creating millions of jobs and improving living standards for people. Furthermore, the government's decision to facilitate rental housing with dormitory-style accommodations for industrial workers will ensure dignified living conditions close to their workplaces, thereby enhancing productivity and overall well-being."

"In alignment with the budget’s focus on women, encouraging states to lower stamp duties—especially for women—will significantly enhance the real estate market. By reducing transaction costs, this initiative will make property transactions more attractive and accessible, further driving market growth," he said.