Mumbai’s real estate market has witnessed a surge in property sales by high-net-worth individuals (HNIs), including several Bollywood celebrities, in recent weeks. Tax experts suggest that the key reasons behind these sales could be profit-booking and strategic tax planning.
One major factor driving these sales is the opportunity to offset long-term capital gains on real estate against losses incurred in the stock market. Over the past few months, the Indian stock market has seen a bearish trend, leading to significant losses for investors. Meanwhile, real estate prices have risen sharply, prompting investors to liquidate properties to balance their overall portfolios and reduce tax liabilities.
Impact of Tax Policy Changes
The government’s recent amendments to long-term capital gains (LTCG) tax provisions have also influenced investor decisions. Initially, the Union Budget 2024-25 proposed lowering the LTCG tax rate on real estate from 20% to 12.5%—but without the benefit of indexation. However, after facing criticism for potentially increasing tax burdens and discouraging investment in real estate, the government revised its stance.
As of August 7, 2024, property sellers now have the option to either:
Pay a reduced LTCG tax of 12.5% without indexation, or
Pay 20% with indexation if the property was acquired before July 23, 2024.
According to Vivek Jalan, Partner at Tax Connect Advisory, many HNIs had heavily invested in stocks over the past two years. With stock values declining by over 10% in recent months, selling real estate at a profit allows them to offset losses and reduce overall tax obligations.
“This arbitrage opportunity enables investors to set off long-term capital gains from property sales against long-term capital losses in the stock market, ultimately saving them 12.5% in taxes,” Jalan explained.
Market Outlook
With real estate prices remaining strong and the stock market under pressure, this trend of HNIs liquidating properties for tax benefits may continue in the near term. Experts suggest that investors will keep a close watch on market conditions and evolving tax policies to make informed decisions about their real estate holdings.