Finance Minister Nirmala Sitharaman’s Budget 2024 has brought a mix of opportunities and challenges for the real estate sector. On one hand, the sector has welcomed several measures, while on the other, certain announcements have raised concerns among stakeholders.

Positive Developments

One of the most notable announcements is the allocation of three crore additional houses under the Pradhan Mantri Awas Yojana (PMAY) for urban areas. With an investment of Rs. 10 lakh crore, this initiative aims to address the housing needs of one crore urban poor and middle-class families. This move is expected to significantly boost the affordable housing segment, driving demand for housing materials and generating employment on construction sites.

Furthermore, the budget’s emphasis on developing industrial parks, corridors, infrastructure, and vegetable supply chains near urban consumption centers offers substantial opportunities for real estate stakeholders. These developments are poised to enhance the overall growth and dynamism of the sector.

Concerns and Challenges

However, not all announcements have been received positively. A significant change in the tax treatment of immovable properties has become a source of worry. The government has clarified that the indexation benefit will be removed for properties bought after 2001, while retaining it for those purchased before that year. This adjustment accompanies a proposal to reduce the long-term capital gains (LTCG) tax on real estate from 20% to 12.5%, aimed at simplifying tax calculations.

Experts warn that this shift could lead to a heavier tax burden for property sellers. For instance, if Rahul purchased a property for Rs. 30 lakh in the financial year 2002-2003 and sold it for Rs. 1.5 crore in the financial year 2024-2025, the capital gain would be Rs. 1.2 crore. Under the new rule, Rahul would have to pay a tax of Rs. 15 lakh (12.5% on LTCG).

In contrast, under the older rule, with the benefit of indexation, the calculation would be different:

• Indexed purchase value = Purchase value x (Cost inflation index for the year of sale / Cost inflation index for the year of purchase)
• Indexed purchase value = Rs. 30 lakh x (363 / 109) ≈ Rs. 99.9 lakh (almost Rs. 1 crore)
• Long term capital gain = Sale value – Indexed purchase value
• LTCG = Rs. 1.5 crore – Rs. 1 crore = Rs. 50 lakh
• Tax = 20% of Rs. 50 lakh = Rs. 10 lakh

This scenario shows that with the indexation benefit, Rahul’s tax liability would be Rs. 10 lakh, significantly lower than the Rs. 15 lakh under the new rule. This change could potentially deter future investors, particularly those who finance their real estate investments with loans.

Conclusion

The Budget 2024 has brought a mix of opportunities and challenges for the real estate sector. While the boost to affordable housing and infrastructure development is a welcome move, the changes in the tax treatment of immovable properties have raised concerns. Stakeholders will need to navigate these new dynamics carefully to make the most of the opportunities while mitigating the challenges.