The End of Indexation Benefits on Property Sales Sparks Debate
The removal of indexation benefits on property sales has sparked a debate on its impact on the real estate industry and taxpayers.
PropertyReal EstateCapital Gains TaxIndexation BenefitsBudget 2024Real Estate NewsJul 25, 2024
According to government officials, the new tax rate without indexation is beneficial when a property has appreciated 1.7 times or more for property held for five years, 2.4 times or more for property held for 10 years, and 4.9 times or more for property purchased in 2009-10. However, industry experts argue that this may not be the case for properties held for longer durations, where the annual capital value growth is around 10-12%.
Industry players also argue that if rationalization across asset classes was the objective, parity should have been restored for all applicable taxes, including stamp duty on resale, which is 5-7% of property value compared to 0.1% securities transaction tax (STT) in India.
The proposal to remove indexation benefits is part of a larger effort to bring every asset class that faces capital gains at par. The government aims to offer a simple treatment and remove the differential rates for various classes of assets. The benefits have been extended with a hike in exemption limit of long-term capital gains for certain financial assets to Rs 1.25 lakh per year from Rs 1 lakh.
Proptech firm Reloy's CEO, Akhil Saraf, said that if the objective is to make taxation simpler, then all parts of it have to be simple. Real estate industry experts, such as Rohan Sharma, director at JLL India, agree that tax incidence for the new rate without indexation may be lower for properties held for shorter durations, but may be higher for longer durations.
As the debate continues, it remains to be seen how the removal of indexation benefits will impact the real estate industry and taxpayers in the long run.
Frequently Asked Questions
What is the new tax rate without indexation?
The new tax rate without indexation is 12.5% as against 20% earlier that came with indexation benefit.
When is the new tax rate without indexation beneficial?
The new tax rate without indexation is beneficial when a property has appreciated 1.7 times or more for property held for five years, 2.4 times or more for property held for 10 years, and 4.9 times or more for property purchased in 2009-10.
What is the impact of removal of indexation benefits on the real estate industry?
Industry experts argue that the removal of indexation benefits may lead to higher frequency of secondary market real estate sales and may result in a higher use of cash in property transactions.
What is the government's objective behind removing indexation benefits?
The government aims to bring every asset class that faces capital gains at par and offer a simple treatment, removing the differential rates for various classes of assets.
How will the removal of indexation benefits affect taxpayers?
The removal of indexation benefits may result in higher tax incidence for some taxpayers, especially those holding properties for longer durations, while others may benefit from the new tax rate without indexation.
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