(MENAFN-IANS) New Delhi, July 23 (IANS) Real Estate Realty stock prices fell after Finance Minister Nirmala Sitharaman on Tuesday proposed to scrap the indexation benefit in computing long term capital gains tax (LTCG) on real estate.
The Nifty Realty index closed down 2.29 per cent. DLF shares fell over 6 per cent to an intraday low of Rs 778.2 following the announcement of Budget 2024.
In order to streamline the capital gains tax regime, the Finance Minister has revised the LTCG tax rate on all financial and non-financial assets to 12.5%. This has reduced the LTCG tax on immovable property from the earlier 20%.
“The continued focus on PMAY-Urban with investment of Rs 10 trillion over the next five years is likely to be a positive move for the affordable residential real estate segment. However, tax outflows are likely to increase with the demise of indexation benefits at the time of property sale. Hence, this is a negative decision for the sector,” said Anupama Reddy, vice-president and joint group head, corporate ratings, ICRA Limited.
“While the indexation benefit to the real estate sector has gone, the reduction in tax rate from 20% to 12.50% is a positive,” added Shrikant Chouhan, head of equity research at Kotak Securities.
Meanwhile, benchmark indices also fell with the Nifty 50 down 0.6 per cent or 136 points and the Sensex down 350 points.
Other real estate stocks also fell, including Macrotech Developers, down 3.6 percent, Godrej Properties, down 5 percent, Prestige Estates, down 5.3 percent and Phoenix Mills, down 2.1 percent.
The removal of indexation benefits for real estate and other assets “will lead to increased tax outflows,” said Bhavik Thakkar, CEO of Avance Investment Managers.
“For example, if you bought a property for Rs 100 in 2001 and sold it for Rs 500 in 2024, under the previous tax regime (when the benefit of indexation was allowed), even at a tax rate of 20 per cent, the tax would have been Rs 27.4 (CII Rs 363 in FY25), but as per today's budget announcement, at a tax rate of 12.50 per cent, the tax would be Rs 50. This may have an impact on secondary sales of properties,” Thakkar explained.
“This uncertainty has cast a shadow on buyer sentiment in the housing market. Though the initial reaction has been negative, the situation continues to evolve, influencing stock price movements today,” said Raj Vyas, vice-president, research at Tej Mandi.
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