Realty Stocks Rise After Government Revises Indexation And Capital Gains Tax

Indian realty stocks gained on Wednesday after the government revised the Finance Bill, 2024, allowing real estate investors to seek relief under certain conditions.

The revision allows taxpayers to choose between a 12.5% long-term capital gains tax rate without indexation or a 20% rate with indexation for property acquired before July 23. The proposed changes will allow real estate investors to seek relief under the long-term capital gains tax for investments up to July 23, instead of the 2001 cutoff in a budget proposal.

Shares of Sobha Ltd. rose as much as 5.45%, Godrej Properties Ltd. gained 4.39%, and Sunteck Realty Ltd. went up to 4.11%. Other real estate companies, such as DLF Ltd. and Oberoi Realty Ltd., each climbed nearly 4%.

Nifty Realty Index rose 1.76%, or 17.60 points, to 1,018.20, compared to an 1% advance in the benchmark Nifty 50 as of 10:26 a.m. It was also among the top five sectoral gainers.

In July, Finance Minister Nirmala Sitharaman announced a reduction in the LTGC tax to 12.5% from 20% while presenting the Union Budget 2024. However, the indexation benefit on real estate transactions for properties bought in and after 2001 was removed, meaning sellers must now pay tax on the entire gain without adjusting for inflation. This had sparked confusion and concern among property sellers.

The indexation benefits previously allowed sellers to account for inflation using the Cost Inflation Index published by the Central Board of Direct Taxes, with the base index set on April 1, 2001. According to ANAROCK data, properties under construction have increased nearly sevenfold in value on average, while the overall real estate sector has grown nearly fourfold since 2009.