Budget Impact:Investors may suffer losses if inflation adjustment is not considered while selling old property. The central government has proposed in the general budget on Tuesday to reduce the long term capital gains (LTCG) tax on immovable properties from 20% to 12.5% and remove the indexation related benefits. However, experts have termed this move as ‘negative’ for those investing in real estate.
Shock to taxpayers
On this proposal, Deloitte India partner Aarti Rawat said that without ‘indexation’, LTCG will have a deep impact on taxpayers. She said that with this change, now taxpayers will pay tax on the difference between the actual cost and the selling price, which will be significant. She said that if inflation adjustment is not considered then investors will suffer losses.
Negative for real estate
ICRA Vice President and Co-Group Head (Corporate Ratings) Anupama Reddy also said that despite the reduction in LTCG tax rate, given the long-term returns on the residential real estate sector, the removal of ‘indexation’ benefit at the time of sale of property is likely to lead to an increase in tax. Reddy said that hence, it is negative for the real estate sector.
More loss on old property
Aniket Dani, Director (Research), Crisil Market Intelligence and Analytics, said that the removal of indexation benefit is largely negative for those who are planning to sell their old property. Jaxay Shah, former president of real estate body CREDAI, said that if it is assumed that the average ‘return’ on property for a period of more than four years is 12 percent and inflation is 5 percent, then the impact of the proposed changes will be neutral. On the other hand, if the average ‘return’ on investment is more than 12 percent and the inflation rate is 5 percent, then there will be tax savings as per the proposed amendment compared to the current tax rate.
These announcements in the budget are positive
Sanjay Aggarwal, Founder, MD & CEO, AU Small Finance Bank, says that the major steps for MSMEs include new credit guarantees, increasing the scope of joining the online electronic platform TReDS, increasing the Mudra loan from 10 lakh to 20 lakh and abolition of “angel tax” for all categories of investors in startups, which is a good sign for this sector. The allocation of 10 lakh crores for Pradhan Mantri Awas Yojana Urban 2.0 will help 1 crore urban poor. At the same time, the benefit of PLI schemes covering sectors like pharmaceuticals, electronics, food processing and automobiles will be available further.
Sanjay Agarwal says that the allocation of Rs 2 lakh crore for employment and skill development through employment-linked incentives, internship programs and upgradation of ITI will not only take advantage of India’s demographic dividend, but will also promote sustainable private consumption. Most importantly, reducing the main fiscal deficit target by 20 bps to 4.9 percent of GDP compared to the interim budget estimate and maintaining the capex target at 3.4 percent of GDP without compromising on the quality of fiscal adjustment is a good sign for interest rates and possible sovereign upgrade.
