India's Indexation Reform: A Step towards a More Equitable Housing Market
Top realty experts in Mumbai agree that eliminating indexation on real estate will lead to higher tax payments for a small number of people, but the overall impact may be positive in the long run.
IndexationReal EstateHousing MarketIndiaTax ReformReal Estate MumbaiAug 01, 2024
What is Indexation in Real Estate?\nIndexation in real estate means adjusting the purchase price of a property for inflation, as determined by the government's cost inflation index, to reduce the taxable gain on sale. Long-term capital gain is the difference between the sale price minus indexed cost of acquisition for a long-held asset.\n\nThe government has amended the rules to scrap the benefit of indexation for calculating long-term capital gains (LTCG) with immediate effect. While this change may affect wealthy individuals who buy real estate as an investment, most home-owners who buy properties for their personal use will remain unaffected.
Who Are the Losers?Wealthy individuals who buy real estate as an investment will be affected by this change. These individuals hold on to property for a long time, hoping for sharp price appreciation to make up for high costs. The new indexation rules will make such investments unattractive.The policy change aims to discourage speculative buying, thereby increasing the availability of housing stock and stabilising prices. This could benefit many prospective home-owners, as most properties purchased as pure investment remain locked up due to the risks associated with rent agreements.
In conclusion, the decision to eliminate indexation may have triggered initial outrage, but it would lead to a more stable and equitable housing market, benefiting a larger portion of the population in the long run.
Frequently Asked Questions
What is indexation in real estate?
Indexation in real estate means adjusting the purchase price of a property for inflation, as determined by the government's cost inflation index, to reduce the taxable gain on sale.
Who will be affected by the change in indexation rules?
Wealthy individuals who buy real estate as an investment will be affected by this change.
What is the purpose of the policy change?
The policy change aims to discourage speculative buying, thereby increasing the availability of housing stock and stabilising prices.
Will this change affect home-owners who buy properties for their personal use?
No, most home-owners who buy properties for their personal use will remain unaffected.
What is the expected outcome of the decision to eliminate indexation?
The decision to eliminate indexation may have triggered initial outrage, but it would lead to a more stable and equitable housing market, benefiting a larger portion of the population in the long run.
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