Indexation plays a pivotal role in calculating gain or loss on the real estate property that it may dwindle the overall tax adjusting with the purchase price of the implicit asset
Finance Minister Nirmala Sitharaman released various changes removing indexation from the considerable long-term capital gains tax. Since it was announced on Tuesday it has been a topic that people started talking about the pros and cons of the remotion of indexation benefits on the sale of any properties.
The Modi government has stated that the indexation benefits for properties till the year 2001 will stand stable and the properties which were purchased after the date may taxed based on the indexation prices in 2001 or with the purchased cost-adding indexation till 2001 focusing on the lower price which might affect real estate transactions after Union Budget 2024.
Firstly, Let’s get acquainted with the term ‘Indexation Benefits’ on real estate property:
Indexation plays a pivotal role in calculating gain or loss on the real estate property that it may dwindle the overall tax adjusting with the purchase price of the implicit asset. This will allow the holder to gain higher profits by adjusting the rate of inflation and calculating the price with the year of purchase or sale.
The new removal of indexation benefits is likely to hit the real estate market hard considering the LTCG (Long Term Capital Gain) tax as it is effective July 23, 2024. The LTCG is reduced from 20% to 12.5% and the indexation benefits have been eliminated which may lead to higher taxes afterwards. This is also applicable to the removal of indexation benefits of other unlisted assets and gold as well.
Benefit of change in rate from 20% (with indexation) to 12.5% (without indexation) in real estate
✅The reduction in long term capital gains tax rate from 20% with indexation to 12.5 % without indexation for real estate will benefit in almost all cases.@nsitharamanoffc…
— Income Tax India (@IncomeTaxIndia) July 24, 2024
This may lead to a sudden fall in the real estate market as Deepak Shenoy, the founder of Capital Mind, posted on X that the scrapping of the indexation benefit will make a huge impact on the real estate market.
This market is telling you something.
Post-budget when cap gains are up and lots of moves on taxation, there is no meaningful selling. Very interesting.
— Deepak Shenoy (@deepakshenoy) July 24, 2024
On the contrary, he stated that Real estate might get super advantages in many ways by investing long-term gains in ANY asset into a house and saving LTCG tax.
Don’t worry about Real Estate. It continues to get super advantages in so many ways:
* You can invest long-term gains in ANY asset into a house and save LTCG tax (no other asset class has this)
* You get to offset principal against salary (80C)
* You get to offset interest…— Deepak Shenoy (@deepakshenoy) July 24, 2024
According to Finance Secretary TV Somanathan, the new change would benefit the middle class reducing the tax approach complexities. He pointed out that the real rate of return typically lies between 6-16% as the value of your property rises by 10% you will get 4% of inflation with indexation as the 6% goes to the capital gain which would lead to an overall reduction in taxation.
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Meanwhile, people are more concerned about its impact as it shifts the whole investment strategy leading to the withdrawal of assets having higher tax rates. This will result in higher tax liabilities and lower profits for real estate transactions. Experts and people from the opposition criticised this new taxation as Congress leader Supriya Shinate called this move an injustice to the middle-class people.
The 20 per cent fall from the previous LTCG tax on property with the complete removal of the indexation tax is quite something that hits the real estate world that it may pull people back from investing in the real estate sector on account of lower benefits and higher taxes and that makes this new budget announcement a talk of the town.
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