H
igh-net-worth individuals (HNIs), including several Bollywood celebrities, have been selling their properties in the Mumbai real estate market this month. Tax experts suggest that these sales may be driven by a desire to capitalize on healthy returns or book profits from real estate to offset losses in the stock market.
While HNIs typically invest in shares and property, the current bearish sentiment in the Indian stock market has led to a surge in real estate prices. As a result, some investors are selling their properties to set off long-term capital gains against long-term capital losses on share sales. This strategy can help them save 12.5% in taxes.
The government's decision to lower the long-term capital gains tax on real estate from 20% to 12.5% without indexation benefits has also contributed to this trend. Taxpayers can now choose between a lower tax rate of 12.5% without indexation or a higher rate of 20% with indexation for properties acquired before July 23, 2024.
Tax experts believe that HNIs are taking advantage of this opportunity to arbitrage and set off long-term capital gains on property sales against long-term capital losses on share sales. For instance, an HNI who sold shares worth Rs.100 crores at a loss of Rs.10 crores and later sold a property for a profit of Rs.10 crore may save Rs.1.25 crore in taxes.
Neetu Vinayek, Partner and Tax Infra leader at EY India, suggests that investors may also be wary of potential increases in the LTCG tax rate or complete withdrawal of indexation benefits. She notes that booking profits from real estate sales can help offset losses from recent investments in the stock market.
Real estate consultants believe that price appreciation is another reason why HNIs are selling their properties and booking profits. Jayesh Rathod, co-founder and director of The Guardians Real Estate Advisory, suggests that investors may be taking advantage of good returns due to property appreciation or using real estate sales to set off capital gains against losses in the stock market.
