Budget 2024: Now pay more tax on older property sale as FM removes indexation 

If you own a house, which you are planning to sell, it is likely that you will end up paying more tax on the transaction from now own. As a key change comes into effect post the union budget tabled by Finance Minister Nirmala Sitharaman, capital gains tax on sale of real estate assets like homes would be higher for most owners.

In the Budget 2024-25, the Finance Minister has removed the indexation benefit for homeowners. To simplify the process, the FM has announced removal of indexation clause completely on real estate assets, and brought down the long-term capital gains tax (LTCG) rate to 12.5% from 20%. As result, say experts effective tax incidence on LTCG against real estate assets would be higher for most owners, especially for those who are holding the property for more than five years.

“The Finance Minister's decision to remove the indexation benefit for long-term capital gains (LTCG) tax on real estate marks a significant shift for the sector. While the intention to simplify and rationalise the tax regime is clear, the removal of the indexation benefit, despite the reduction in the LTCG tax rate to 12.5%, could lead to a higher tax burden on real estate transactions,” says Dhruv Agarwala, Group CEO, Housing.com & PropTiger.com.

According to Piyush Bothra, Cofounder & CFO, Square Yards, the moves to likely reduce the attractiveness of real estate as an asset class. “The removal of the indexation benefit in LTCG for property sales is a dampener for the real estate market. However, the simplification of tax structures from a long-term perspective is a welcome move,” he says.

However, after industry stakeholders and opposition party Indian National Congress raising their concerns, Finance Secretary TV Somanathan clarified that the indexation benefit offered till 2001 would be protected - offering breather to the property owners.

Experts like Vimal Nadar, Senior Director & Head of Research, Colliers India says, points towards the overall benefits of these moves. “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”.

According to Amit Goyal, Managing Director, India Sotheby's International Realty, bringing down the long-term capital gains tax from 20% to 12.5% “is a welcome step, even if it comes with removal of indexation benefits. This will encourage more liquidity in property transactions. Higher uniformity in long term capital gains tax across different asset classes was a long standing ask of investors.”