Union Budget 2024: No inflation offset hurdle for real estate investors

Finance minister Nirmala Sitharaman scrapped indexation benefits on property while lowering long-term capital gains tax on it to 12.5% from 20% in the budget, clarifying subsequently that this will not apply to assets acquired before April 1, 2001. The withdrawal of indexation has led to concerns that this will impact real estate deals.

Addressing a news conference after the budget, the minister said the removal of indexation in calculating long-term capital gains tax (LTCG) on real estate will not affect everyone, and old properties bought before the above date will continue to get the benefit.

The budget proposal to abolish indexation benefits made property owners and investors looking to sell their assets a concerned lot.


While the higher tax outgo due to this withdrawal may be partly offset against the benefit of a proposed lower LTCG, the higher liability is expected to weigh on decisions to sell property.

Sitharaman proposed in the budget that long term gains on all financial and non-financial assets, held for more than 24 months, will attract a tax rate of 12.5%. This is currently being levied at 20%.

Real estate industry participants and tax experts cautioned about the potential impact of the removal of indexation benefits on the property market.

"The benefit of lower LTCG at 12.5% as proposed by Finance Budget 2024 needs to be weighed against the loss of indexation benefit under the current Income Tax Act, 1961," said Hemal Mehta, partner at Deloitte India.

Indexation adjusts the purchase price of an asset for inflation and has traditionally been a valuable tool for property owners in reducing their taxable gains. By accounting for inflation, indexation lowers the effective capital gains, reducing the tax liability.