Budget 2024: A Game Changer for Real Estate?

The Indian government under Modi announced new plans to boost the real estate sector. They increased funds for PM Aawas Yojana, which is for affordable housing. They also introduced rental housing for industrial workers. They aim to ensure housing for everyone. 

They also plan to build industrial parks and promote developments near transportation hubs. States have reduced stamp duty. They also made land reforms. We expect these changes to increase real estate activities.
 
They reduced the holding period to support REITs. This change is for tax benefits. But, the budget also increased taxes on property sales without adjusting for inflation. Digitising land records will make transactions fairer. It will also increase trust in the market.

Budget 2024 highlights: Key Takeaways 

       •  PM Awas Yojana Urban 2.0: INR 10 lakh crore investment, targeting three crore urban houses.
       •  REITs & Property Tax Reforms: LTCG on REITs rose to 12.5%. LTCG on property fell to 12.5%. They removed indexation benefits.
       •  We propose industrial growth initiatives. They include plug-and-play parks in 100 cities. They also include transit-oriented development and digitization of land records.
       •  The aim is to boost transparency. This will attract investment and spur growth in cities. This will happen through urban development and infrastructure.

Union Budget 2024: Revised Capital Gains Tax Framework for REITs

In section 2(42A), the holding period for REIT-listed units is 36 months. For listed equity shares, it is 12 months. For unlisted REITs, the holding period is 36 months and 24 months for unlisted equity shares. According to section 112A, the government taxes long-term capital gains (LTCG).

This tax applies to transferring listed REIT units. The tax rate is 10%, plus surcharges and cess. According to section 112A, LTCG on listed REIT units is exempt up to INR1,00,000. The LTCG tax rate on unlisted REIT units is 20%. You can use indexation.

For non-residents, such gains are taxable at 10%, without indexation benefit. Applicable surcharges and cesses under section 112 will increase all rates. Proposed provisions in the Budget, effective from 23rd July.

Union Budget 2024: Reduced Holding Period for REITs

For listed REIT units, the holding period is reduced to 12 months.  For unlisted REIT units, the holding period is reduced to 24 months. The government has raised the LTCG tax rate on listed REITs to 12.5%. This rate includes surcharge and cess.  

Union Budget 2024: Exemptions for REITs

The exemption limit increased to INR 1,25,000 for LTCG on listed REIT units. The LTCG tax rate is 12.5% for all assets for residents and non-residents. This includes units of REITs, whether listed or unlisted. There is no indexation benefit.  

Union Budget 2024: Changes in tax rates on STCG and LTCG

The tax rate on listed units of REITs jumps to a total of 20%.Starting July 23, 2024, the government will cut the tax on long-term capital gains (LTCG). These are gains from selling property. The new rate is 12.5%, down from 20%. This is also subject to any surcharge and cess. 

Union Budget 2024: No Benefit of Indexation

The benefit of indexation is gone. It adjusted the purchase price for inflation when calculating LTCG tax. The second change to section 48 removed it. But, for property acquired before April 1, 2001, the fair market value will be the cost. This cost is used to compute capital gains. 

Union Budget 2024: Changes in TDS

These changes aim to simplify tax calculations and align with current economic conditions. The Tax Deducted at Source (TDS) rates changed on October 1, 2024. Under section 194-IB, people and Hindu Undivided Families (HUFs) must deduct TDS at a lower rate of 2%.

This applies to rent over INR 50,000 per month to a resident. Previously, this rate was 5%. Also, section 194-IA requires deducting 1% TDS. This applies to property transfers over INR 50,00,000. The amendment clarifies this. The threshold applies to the total from all who transfer or receive. It is effective from the same date.

New Provisions for Rented Property

Rental income from letting of house property is taxable either under ‘Income from House Property’ or under PGBP.  Under PGBP, higher deductions are allowable against the rental income as against the case where the same is taxed as Income from House Property.

Now, rental income from letting of residential property is to be taxed under Income from House Property only.  This amendment will be effective from 1 April 2025.

Union Budget 2024: Key policy announcements

       •  PM Awas Yojana Urban 2.0 will address the housing needs of 1 crore urban poor and middle-class families. It will do this with an INR 10 lakh crore investment.
       •  PM Awas Yojana: Construct three crore more houses.
       •  Develop "plug-and-play" industrial parks in 100 cities to attract investments.
       •  Create rental housing for industrial workers via PPP mode.
       •  Implement plans for transit-oriented development in 14 cities. The cities have a population of over 3 million.
       •  Encourage state governments to reduce stamp duty, especially for women-owned properties.
       •  Speed up land reforms. Do this by digitising land records and adding unique IDs for urban and rural land.
       •  Launch Phase IV of PM Gram Sadak Yojana.
       •  Devise a framework for the redevelopment of existing cities.
       •  Develop 'Cities as Growth Hubs.' Do this by collaborating with states. Collaborate to streamline economic and transit planning. Expand peri-urban zones through town planning schemes.

Summary: budget 2024 highlights for real estate 

       •  PM Awas Yojana Urban 2.0 is a significant investment. It aims to reduce urban housing deficits, boost construction, and grow the economy.
       •  The initiatives target manufacturing goals. They also address workers' housing needs. We expect private investors to show interest.
       •  The reform aligns REITs' tax rates with those for equity. It makes REITs more attractive to many investors. It also boosts real estate's liquidity.
       •  LTCG tax on immovable property will fall to 12.5%. However, the tax cut will be offset by removing indexation benefits.
       •  The budget focuses on development, transparency, and tax reforms. It aims to boost real estate and drive investment. It will also aid growth. Effective implementation is crucial for success.