Will the Rs. 10 crore cap on capital gains deduction have an impact on the reconstruction of the Mumbai real estate market?

 Will the Rs. 10 crore cap on capital gains deduction have an impact on the reconstruction of the Mumbai real estate market?

Landlords who want to sell their tracts of land to developers are subject to a tax of about 20% on capital gains over Rs 10 crore. But according to experts, arranging deals can cut costs.

Those selling their ultra-luxury apartments in Mumbai would be impacted by the Union Budget 2023 proposal to limit capital gains deduction on residential unit sales to Rs 10 crore, but so will landlords who sell their property to developers for redevelopment. According to developers and industry professionals, they aim to sell the parcels.

Experts estimate that a capital gain on any land deal that exceeds Rs 10 crore will be taxed at a rate of about 20%. In Mumbai, a block of property larger than 2 hectares in a distant suburb can easily fetch more than Rs 20 crore, necessitating the payment of significant capital gains tax by landlords in the event of a sale.


No need to panic, tenants

The capital gains tax on redevelopment projects does not harm developers, according to Nitin Bavisi, chief financial officer of Ajmera Realty. They will pay 20% tax on capital gains beyond Rs 10 crore if the amount surpasses that level. However, it also varies from instance to situation.


not have an impact on redevelopment

The high capital gains tax, according to analysts, won't slow Mumbai's redevelopment, nevertheless.

Amit Goenka, the MD and CEO of Nisus Finance, said to Moneycontrol: "In essence, capital gains tax is only applied to ultra- and luxury flats. However, it has no bearing whatsoever on Mumbai's regeneration. The fact that landlords are selling their land is the sole drawback. If the amount of capital gains and redevelopment surpasses Rs 10 crore, a tax of roughly 20% will need to be paid."


"But as long as they alter the terms or set the price in accordance with the contract, landlords will still be able to sell their land. They cannot choose a one-off liquidation that would cause a loss of more than Rs. 10 crore "added he. More may be able to accept their land as compensation instead of capital profits. There are also choices including joint ventures, collaborative development, and development rights where no money is exchanged but the asset generates profit.



In Mumbai, more than 2,000 projects are being renovated.

A developer who wished to remain anonymous remarked, "In Mumbai, there are currently more than 2,000 rehabilitation projects. In the event that the Maharashtra government agrees to eliminate the premium and stamp fee, this number would only rise in the upcoming months."

"But landlords won't be discouraged from moving through with redevelopment because of the capital gains tax. In Mumbai, there isn't a landowner with renters who isn't planning to redevelop the property by selling development rights or the land outright "Added he. to travel."

Rental agreements can be crafted by landlords to minimise capital gains tax.

Experts claim that by arranging the transaction, landlords selling land might minimise their tax liability.

A chartered accountant named Aditya Jante said, "For instance, if a landlord sold his property for Rs 25 crore but paid Rs 10 crore for it initially, he would be required to pay tax on Rs 5 crore. Budget Bill The maximum deduction allowed under section 54F as of 2023 is rs10 crore

"The capital gains tax will therefore be on Rs 5 crores even if the entire sum is invested in the property because the capital gain is Rs 15 crores. This can be enhanced by carefully structuring the contract. The cap of Rs. 10 crore during reconstruction, however, need not bother renters or developers.

What was in the budget?

The Finance Minister Nirmala Sitharaman had stated in her presentation of the Budget for 2023–2024 that she "proposes to increase the deduction from capital gains on investment in residential dwellings under section 54 and 54F to Rs 10 crore" in order to "better target tax incentives and exemptions."


What developers have to say on the tax

According to experts and real estate developers, Moneycontrol had previously reported that the proposal to deduct capital gains on investment in residential dwellings may not have a significant impact on developers with a mixed portfolio of projects ranging from inexpensive to luxurious residences.

According to Niranjan Hiranandani, vice-chairman of NAREDCO and a real estate developer, sales may not be impacted by the cap and only a small number of people are expected to be affected. Individual homebuyers might be impacted, but not the business as a whole, according to Hiranandani.