Home buyers and investors were eagerly waiting for the Budget 2024 announcement. Tax relief and the availability of homes at affordable rates were the two main demands of the buyers. On the other hand, the industry expected measures to lower the cost of the input materials, reduction in the GST rates and policy support for better infrastructure. What tax benefits has Budget 2024 given to the realty sector?
The full Budget of 2024, after the interim Budget was presented in February 2024, was very much awaited by the home buyers and investors. People wanted relief in terms of an increase in savings in their hands so that they could plan to buy their first home or repay their home loan EMIs. The real estate industry was also expecting relief in terms of tax relief and reduction in input costs. Did Budget 2024 meet the expectations of the people? Discussed are key tax-related changes announced in the budget 2024 in this article.
Change in LTCG tax may not be what realty investors would have expected
In the Budget, the government has proposed to levy a 12.5% tax on all financial and non-financial long term capital gains (LTCG).
“Removal of indexation benefit on LTCG can potentially limit speculative investment in real estate asset classes. This will usher in end-user confidence, particularly in the second homes market which is on a high growth trajectory”, Vimal Nadar, head of research at Colliers India.
According to media reports, the government has clarified that the indexation benefit won’t impact the properties inherited or acquired before 2001. The indexed value in April 2001 would be considered when calculating the acquisition cost of the property. Acquisition cost would be subtracted from the selling price of the property to ascertain the long-term capital gain (LTCG) and such LTCG would be taxed at a 12.5% rate.
Increase in short-term capital gains (STCG) and LTCG can be painful for home loan borrowers
The government has proposed in the Budget to increase the short-term capital gains tax on the listed shares and equity instruments from 15% to 20%. Though this may not directly impact the realty sector it may indirectly impact a large number of home buyers in the long term, how? There, are many home loan borrowers who pay their loan EMIs through mutual fund systematic withdrawal plans (SWP). Now such SWPs will be subject to higher tax rates (both for STCG and LTCG) and they may not be able to save money through mutual fund investment for paying the loan EMIs, as they would have planned earlier.
Rationalisation of stamp duty is a welcome move, but wait!
“The emphasis on encouraging state governments to reduce stamp duty and other development premiums is a decisive step. This will not only bolster urban housing growth but also make affordable housing more accessible, optimise development costs, and invigorate the demand curve”, says, Niranjan Hiranandani– chairman – Hiranandani and NAREDCO.
Though the government has announced that they would encourage the state governments to lower the stamp duty and allow additional discounts to women buyers, this may not translate to a benefit unless and until state governments agree to it and the bigger question is why would they agree on this because when they get a huge revenue from it. So, one should wait before rejoicing for this announcement until some concrete step is declared by the states.
Change in tax slab rate under new regime and standard deduction rate
The government has proposed to increase the standard deduction for salaried employees to Rs 75,000.
Himanshu Jain, VP – sales, marketing & CRM, Satellite Developers (SDPL), says “The increase in the standard deduction to Rs 75,000 for salaried employees will provide financial relief and enhance disposable incomes, thereby increasing purchasing power and driving consumption in the real estate sector”.
The government has also announced to relax the tax slab under the new regime. The move is cheered by new home buyers as well as the realty sector.
“Revision in tax slabs and increase in deduction limits under the new tax regime can potentially enhance disposable income and drive-up real estate investment across asset classes, especially residential real estate”, opines Badal Yagnik, CEO, Colliers India summarising the India Budget 2024.
Housing.com POV
Every year, the Budget comes with lots of expectations and leaves behind a trail of hope that the unheard demand will be considered next time. The Budget announcement this year is no different in many ways because there are many issues related to GST, input tax credits, income tax benefits, affordable housing and many others, which couldn’t get a place in the list of the FM. However, announcements like stamp duty rationalisation and tax relief may do the work because the next Budget is not far away!
