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The recent budget proposal by the Indian government to limit the tax deduction on long-term capital gains (LTCG) investment in residential property under sections 54 and 54F of the Income Tax Act 1961 to Rs 10 crore is expected to have a significant impact on the demand for super-luxury real estate in the country. The cap on the offset of capital gains from the sale of a residential unit or another long-term asset, except for a residential unit, is anticipated to affect high-value transactions by high-net-worth individuals (HNIs).
Several recent luxury property deals involving industrialists and startup entrepreneurs can be categorized as transactions aimed at saving LTCG. The move is likely to impact the redevelopment projects in high-value realty markets such as South Mumbai and a few localities in Delhi, as per tax experts. However, real estate developers have a different point of view on the matter.
The ready reckoner values in cities like Mumbai and Delhi are not aligned with the current market prices, and they often reflect much higher values than actual transaction values, despite the 10% allowance. This discrepancy could result in significant taxation to individual home sellers under redevelopment, according to Mitil Chokshi, a partner at Chokshi & Chokshi, LLP.
The luxury property market in India could witness a surge in deals in the next two months before the limit is implemented from April 1, 2023. Some experts believe that the market could see an influx of high-net-worth individuals looking to close deals before the limit comes into effect. This is because the new budget proposal is expected to impact their investment decisions and could result in a decline in demand for super-luxury real estate.
In conclusion, the new budget proposal is likely to have a significant impact on the super-luxury real estate market in India. The cap on the offset of capital gains from the sale of residential units is expected to affect high-value transactions by high-net-worth individuals and may also impact redevelopment projects in upscale realty markets. However, only time will tell how the market will be impacted in the long term.
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