Have Indexation Changes Hit Demand In The Real Estate Sector? Industry Experts Weigh In

During her budget presentation earlier this year, Finance Minister Nirmala Sitharaman announced a reduction in the long-term capital gains (LTCG) tax rate from 20% to 12.5%.

However, this change came with the removal of the indexation benefit, which had previously allowed investors to adjust the purchase price of assets for inflation before calculating the capital gains.

Why It Matters: The removal of this benefit sparked outrage among several investors, who argued that the loss of indexation could lead to higher tax liabilities, especially in high-inflation environments.

The government later introduced an amendment allowing taxpayers more flexibility in calculating long-term capital gains (LTCG) taxes on property purchases made before July 23. Under this amendment, taxpayers can choose between two options: the new 12.5% LTCG tax rate without indexation or the old 20% rate with the indexation benefit.

So in the short duration, with all these new changes, how has the demand shaped up in the real estate sector?

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Change In Tack: “Although some investor strategies may have changed as a result of the recent modifications to the indexation requirements for real estate investments, real estate’s long-term attraction is still strong,” said BK Malagi, chief operating officer at Experion Developers.

Domnic Romell, president of CREDAI-MCHI, also said demand has not seen major changes even in the short term. “These changes are positively affecting demand in the short term by making real estate investments more attractive, especially to younger investors,” he told Benzinga India.

Malagi added that even though the tax benefits have been affected, real estate still has some perks that make it a desirable asset class. “For investors who are risk averse, real estate is the preferable option since it offers stability and tangible value in contrast to equity markets, which can be erratic,” he added.

Talking about the changes, Rohit Gera, managing director at Gera Developments, said that while aligning long-term capital gains tax for real estate with other financial assets was a positive step that could make investment in real estate more appealing, the removal of indexation benefits may hurt those with long-term horizons.

Detailing about the amendment made in the rules later, Romell said that the decision to offer taxpayers the choice between the new LTCG tax rate of 12.5% and the previous 20% rate with indexation for properties acquired before July 23 was a welcome one. “This flexibility addresses diverse investment strategies and provides much-needed relief,” Romell added.

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