Real Estate Sector Grapples with Indexation Benefit Removal
The real estate sector is reeling from the removal of the indexation benefit for property sales, with industry players divided on its impact.
Real EstateIndexation BenefitUnion BudgetIncome TaxLtcgProperty SalesReal Estate NewsJul 25, 2024
Some experts, like Sanjay Dutt, CEO and Managing Director at Tata Realty and Infrastructure, believe that the removal of the indexation benefit will lead to higher tax liabilities for sellers, as they will not be able to adjust the purchase price of a property for inflation. Others, like Prashant Thakur, Head of Research at Anarock Property Consultants, argue that the reduction in long-term capital gains (LTCG) tax rate from 20% to 12.5% will offset the loss of the indexation benefit.
The removal of the indexation benefit has sparked concerns among investors, who may face increased tax liabilities due to the change. Bhavik Thakkar, CEO, Abans Investment Managers, noted that the removal of the indexation benefit will increase tax outflows for investors. However, some experts believe that the impact of the removal will vary depending on the type of property seller and the prevailing market conditions.
Ritesh Mehta, Senior Director/Head – North, East & West, Residential Services, India, JLL, noted that the removal of the indexation benefit will likely deter sellers in the secondary market due to higher taxable capital gains. Gulam Zia, Executive Director at Knight Frank, highlighted the cyclical nature of the real estate industry, noting that the weighted average growth in prices is not even 8% in the last three years.
The debate over the removal of the indexation benefit highlights the complexity of the real estate sector and the need for careful consideration of the tax implications of buying and selling properties.
Tata Realty and Infrastructure is a leading real estate development company in India.
Anarock Property Consultants is a leading real estate consultancy firm in India.
JLL is a global real estate services firm.
Knight Frank is a global real estate consultancy firm.
Abans Investment Managers is a leading investment management firm in India.
Frequently Asked Questions
What is indexation?
Indexation means adjusting the purchase price of a property for inflation, thereby reducing the gains and ultimately the tax liability.
How does the removal of the indexation benefit affect property sellers?
The removal of the indexation benefit may lead to higher tax liabilities for sellers, as they will not be able to adjust the purchase price of a property for inflation.
Will the reduction in LTCG tax rate offset the loss of the indexation benefit?
Some experts argue that the reduction in LTCG tax rate from 20% to 12.5% will offset the loss of the indexation benefit, while others believe it will not.
How will the removal of the indexation benefit affect investors?
The removal of the indexation benefit may lead to increased tax liabilities for investors, particularly those who sell properties within a short period.
What is the overall impact of the removal of the indexation benefit on the real estate sector?
The overall impact of the removal of the indexation benefit on the real estate sector is still being debated, with some experts believing it will lead to higher tax liabilities and others arguing it will have a marginal impact.
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