What real estate industry gained from Union Budget 2024 -2025?

The Union Budget 2024-2025 brought about significant changes that are going to impact the real estate industry in various ways. Presented by Finance Minister Nirmala Sitharaman, the budget introduced both challenges and opportunities for real estate investors and developers.

One of the most talked-about changes is the termination of indexation benefits on long-term capital gains (LTCG) for property sales. Let’s understand what these changes mean for the real estate sector, particularly for the middle class and investors.

Termination of Indexation Benefits

What is Indexation?

Indexation adjusts the purchase price of an investment to account for inflation. This adjustment reduces the taxable capital gains when the asset is sold, thereby lowering the tax liability for investors.

The Change

The Union Budget 2024 announced the removal of indexation benefits for LTCG on property sales. Previously, a 20% tax was levied on long-term capital gains with indexation benefits. Now, the tax rate has been reduced to 12.5%, but without the advantage of indexation.

Impact on Real Estate Investments

Middle-Class Homeowners

Negative Impact: The termination of indexation primarily affects the middle class. Without indexation, the taxable capital gains increase, leading to higher tax liabilities when selling property.
Example: Suppose you bought a house for ₹20 lakhs in 1991-92 and sold it for ₹80 lakhs in 2009-10. With indexation, the purchase price would be adjusted to ₹63.51 lakhs, making the taxable gain ₹16.49 lakhs, with a tax of ₹3.29 lakhs. Without indexation, the taxable gain remains ₹60 lakhs, resulting in a tax of ₹7.5 lakhs at the new 12.5% rate.

Real Estate Investors

Short-Term Investors: Investors with shorter holding periods (less than 5 years) will face higher taxes due to the lack of indexation, especially if the property price appreciation is moderate.
Long-Term Investors: For those holding properties for over 10 years with significant appreciation, the impact might be neutral or even marginally beneficial due to the reduced tax rate.

Positive Initiatives for Real Estate

Despite the removal of indexation benefits, the budget includes several positive initiatives aimed at boosting the real estate sector:

Infrastructure Development

Investment in Infrastructure: The government continues to focus on infrastructure development, with an allocation of ₹11.1 trillion, equivalent to 3.4% of GDP, and ₹1.5 trillion for interest-free loans to states for infrastructure projects.
Impact: Enhanced infrastructure drives growth in the real estate sector by improving connectivity and livability, making properties more attractive to buyers and investors.

Urban Housing

PM Awas Yojana (PMAY): The budget allocates ₹10 lakh crore under the PMAY-Urban, targeting the housing needs of 1 crore urban families.
Impact: This substantial investment boosts the housing market, creates jobs, and improves living standards, providing a significant boost to the real estate industry.

Rental Housing

Focus on Rental Housing: The budget emphasizes rental housing with dormitory-style accommodations for industrial workers.
Impact: Providing dignified living conditions close to workplaces enhances productivity and well-being, benefiting both workers and the real estate market.

Key Takeaways

Higher Taxes for Middle-Class Sellers: The removal of indexation benefits leads to higher tax liabilities for middle-class homeowners selling their properties.
Mixed Impact on Investors: Short-term investors will face higher taxes, while long-term investors might see a neutral or slightly beneficial impact due to the reduced tax rate.
Positive Boost from Infrastructure and Housing Initiatives: The budget’s substantial investment in infrastructure and urban housing is expected to drive growth, create jobs, and improve living standards, benefiting the real estate sector overall.

The Union Budget 2024-2025 presents a mixed bag for the real estate industry. While the removal of indexation benefits introduces higher tax burdens for some, the government’s continued focus on infrastructure and urban housing development offers significant growth opportunities.

As always, it’s essential for investors and homeowners to consult with financial experts to navigate these changes effectively and make informed decisions. At Realty Smartz, we are committed to helping you navigate these changes. As a premier real estate consultancy in Gurgaon, we provide expert advice and personalized services to ensure you make the most informed decisions in this evolving market.