India’s real estate sector, which has been under pressure with stocks of major players like Godrej Properties, Macrotech, and Prestige Estates sliding between 10% and 15% since the Union Budget, is showing signs of recovery. The positive sentiment is driven by recent government action aimed at providing tax relief to the sector, as confirmed by a CNBC-TV18 report.
The government has proposed an amendment to the Finance Bill that will offer taxpayers two options for capital gains tax on properties acquired before July 23, 2024. Taxpayers will have the choice between a reduced rate of 12.5% without indexation benefits or a higher rate of 20% with indexation. This change aims to ease the tax burden on property transactions and offer a more favourable tax structure. Under the new provisions, individuals or Hindu Undivided Families (HUFs) transferring long-term capital assets such as land or buildings can choose the tax scheme that results in a lower tax liability. The new scheme provides a lower tax rate but excludes indexation, which adjusts the purchase price of an asset for inflation and thereby reduces the taxable gains.
The real estate sector has been navigating a challenging period following the Finance Minister’s budget announcement, which initially cut the Long-Term Capital Gains (LTCG) tax from 20% to 12.5% while removing indexation benefits. This change had led to a significant drop in real estate stocks, as market participants anticipated a higher tax burden due to the loss of indexation benefits. However, the recent government intervention is expected to rejuvenate investor confidence. The Real Estate Index, which saw a modest uptick, ended the day with gains just under 1%. Despite the recent volatility, the index has performed robustly in 2024, with a notable 27% increase year-to-date.
The sector’s recovery is anticipated as the government’s tax relief measures are likely to mitigate some of the financial pressures faced by property investors. The proposed tax relief is expected to provide a much-needed boost to real estate stocks, supporting their rebound in the coming months.
