Keeping policy rates unchanged is a positive development for the real estate sector. Stable interest rates help maintain consistent borrowing costs for both homebuyers and developers, encouraging continued investment in property. Additionally, experts said that the recent announcement on indexation offers tax benefits to property investors by allowing the purchase price to be adjusted for inflation, which lowers capital gains tax liabilities when selling property.
Double Boost for Housing Sector: Steady Repo Rate and Indexation Benefits Drive Market Optimism
Anuj Puri, Chairman, Anarock Group, underlined that RBI’s decision to keep repo rates unchanged at 6.5% for the ninth consecutive time aligns well with yesterday’s announcement on indexation benefits.
“With interest rates staying steady, EMIs will remain manageable for current and potential homeowners, potentially leading to increased home sales – particularly in the price-sensitive affordable segment,” Puri added.
“The government’s revised budget announcement allows taxpayers to pick between a 12.5% Long-Term Capital Gains (LTCG) tax rate without indexation and a 20% rate with indexation, for properties purchased before July 23, 2024. This will have a very profound impact on both homeowners and aspiring homebuyers,” Puri said.
Benefits For Homeowners:
Puri said that this change gives homeowners flexibility in their tax liabilities when they sell their property. For properties held over a long period, where inflation has majorly raised the property’s value, opting for the 20% tax rate with indexation would be beneficial.
Indexation adjusts the purchase price for inflation, potentially reducing the taxable gain and overall tax liability. For properties held for shorter periods or in low-inflation periods, the 12.5% rate sans indexation could be more beneficial and result in a lower tax burden.
Benefits For Homebuyers
This revision can potentially stimulate the residential property market because it provides clarity and implies potential tax burden reduction. Homebuyers’ sentiment will improve as they have flexible options for addressing their future capital gains tax burden. This will result in higher demand, particularly in markets where property values have been seen to rise significantly, Puri added.
“Also, the anticipation of these changes can potentially cause some homeowners to sell properties sooner to benefit from the new tax regime. This will raise the overall supply of housing units available on the market, helping to keep prices in check.”
Dhruv Agarwala, Group CEO, Housing.com & Proptiger.com, said, “By ending the confusion and speculations from the Budget announcement, this move prevents potential negative impacts on market sentiment and growth in India’s second-largest employment-generating sector. Additionally, while this benefit won’t apply to future transactions, it gives taxpayers more time to plan the sale of their assets to maximise benefits, further boosting investment across housing segments”
Stable policy interest rate to support homebuyer sentiment
Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, “The decision to keep policy rates unchanged is particularly beneficial for the real estate sector, as stable interest rates mean that borrowing costs for homebuyers and developers remain constant, encouraging further investments in property. This stability will foster confidence among potential homebuyers, and support ongoing residential sales momentum and boost housing demand, contributing to the sector’s growth.”
Changes In Indexation After Amendments in Finance Bill, 2024
The Budget 2024-25 had proposed to lower the LTCG from 20 % to 12.5 % but removed the indexation benefits. The new rates have come into effect from July 23, 2024. The indexation benefit allowed the taxpayers to compute gains arising out of the sale of capital assets after adjusting for inflation.
The tax experts had said that the proposed changes in the Budget would raise the LTCG tax burden.
As per the amendments to Finance Bill, 2024, circulated to the Lok Sabha members on Tuesday, individuals or HuF who bought houses before July 23, 2024, can compute his/her taxes under the new scheme (@12.5 % without indexation) and old scheme (@20 % with indexation) and pay such tax which is lower of the two.
As per the changes brought in the 2024-25 Budget, the government has retained the indexation benefit for the taxpayers on properties bought or inherited before 2001.
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