Budget 2023: Capital gains cap at Rs 10 crore to hit luxury home sales

The capping of capital gains at Rs 10 crore for house property is expected to hit sales of ultra-luxury homes, according to industry experts.

The finance minister on Wednesday proposed to limit deductions from capital gains on investment in residential houses under Sections 54 and 54F to Rs 10 crore.

Since ultra-luxury homes are mostly in metros and tier-I cities, the proposal was likely to impact the market for such properties, experts said.

“The capping of the capital gains benefit at a maximum of Rs 10 crore for house property will have a negative impact for the demand for ultra-luxury homes,” said Atul Goyal, CFO, Brigade Enterprises.

Goyal pointed out that earlier, all capital gains could be invested in new houses or government-specified securities to save on capital gain tax. “Now capital gains, which can be reinvested, are restricted to Rs 10 crore. Capital gains above Rs 10 crore will be taxable,” he said.

Kunal Savani, partner at Cyril Amarchand Mangaldas, said that the capping of long-term capital gains tax exemption was a major speed bump for luxury projects.

“Contrary to their intention, that is to mitigate housing shortage, provisions exempting capital gains on acquisition of residential houses were frequently used by high net worth individuals (HNIs) and ultra-high net worth individuals to offset their gains on the sale of prime residential properties or on the sale of other eligible capital assets (mainly equity shares),” Savani said.

Quite a few unicorn promoters and key management members holding stock options have taken advantage of these provisions and invested in luxury residential properties. Accordingly, in order to curb these practices, the government has now proposed to curtail the benefits available under the provisions to the extent of Rs 10 crore, he said.

Amit Goyal, CEO, India, Sotheby’s International Realty, said the proposed cap to Rs 10 crore could be a big deterrent for the housing industry. “We sincerely appeal to the government to reconsider this limit,” he said.

Anuj Puri, chairman at Anarock Property Consultants, said, “This (the proposal to cap) seems to be a negative for the HNIs, as previously there was no such cap. It means that if one sells a house and gains are more than Rs 10 crore, then the maximum benefit is till Rs 10 crore when invested into another property.”

Puri, however, said that it would have no direct impact on primary luxury housing sales, but the resale luxury market may be affected to an extent.

Niranjan Hiranandani, managing director at Hiranandani Group, said the proposal could create issues for individual buyers but would not impact the macro market.

“Families are liable to pay capital gain tax, which will disincentivise them to buy multiple properties as a security provision for their children,” he said.

However, Vikas Oberoi, chairman and managing director at Oberoi Realty, felt otherwise. “Hardly close to 10 per cent of the buyers have capital gain issues,” he said.

Amit Bhagat, managing director and CEO at ASK Property Fund, also did not anticipate any impact of the proposal. “Buyers in that segment are not dependent on savings in tax outflow of capital gains. It is an upgrade demand and their decision is not based on savings from that.”