DLF Limited, a leading real estate developer based in Delhi NCR, has expressed confidence that recent changes in the capital gains tax regime will not significantly impact its sales performance. This statement comes amid concerns within the industry about the potential negative effects of the Union Budget 2024 on real estate transactions.
Changes in Capital Gains Tax Regime
The Union Budget 2024, announced by Finance Minister Nirmala Sitharaman, introduced significant modifications to the capital gains tax regime. Notably, the indexation benefit, which allowed taxpayers to adjust the purchase price of assets for inflation, was removed. This change affects all asset classes, including real estate, and has been coupled with a reduction in the Long Term Capital Gains (LTCG) tax rate from 20 percent to 12.5 percent.
While these changes are aimed at simplifying the tax structure, they have sparked concerns among real estate developers and investors. The removal of the indexation benefit, in particular, is seen as potentially diminishing the financial attractiveness of real estate investments by increasing the effective tax burden on gains from property sales.
Despite the widespread apprehension, DLF Limited’s MD and CEO, Ashok Tyagi, downplayed the impact of these changes on the company’s sales outlook. During an investor call on July 26, Tyagi stated, “The budget was obviously a very interesting budget. There has been a lot of noise around indexation (removal) but once the noise is filtered out, I don’t think it has too much of a bearing on the way the sales behaviour will be.”
DLF Limited reported a robust financial performance for the quarter ended June 30, 2024, with a 23 percent year-on-year increase in net profit, reaching Rs 646 crore. This positive outcome, coupled with a strong sales guideline of Rs 17,000 crore for the financial year 2024-25, underscores the company’s optimism. In the first quarter alone, DLF’s sales bookings surged over three-fold to Rs 6,404 crore, compared to Rs 2,040 crore in the same period last year.
Industry Concerns and Future Outlook
Despite DLF’s optimistic stance, other real estate experts have voiced concerns that the new tax norms could deter potential buyers, particularly in a market where property prices and transaction volumes are closely tied to tax incentives. The removal of the indexation benefit might lead to a reevaluation of investment strategies, especially for those seeking moderate capital gains.
Experts suggest that investors focusing on high-growth markets might fare better under the new tax regime compared to end-users or those targeting more stable, long-term returns. This shift could potentially reshape investment patterns and market dynamics in the coming years.
As the real estate sector adjusts to these regulatory changes, the true impact on sales and market behavior will become clearer. However, companies like DLF Limited remain confident in their ability to navigate these challenges, driven by strong market fundamentals and robust financial planning
