Recent changes in the finance bill have sparked discussions, especially in the real estate world. The government has decided to bring back indexation, but only partially. This new rule only applies to movable property, such as land and buildings. Plus, if you buy property after July 23, 2024, you won’t get any indexation benefits. This partial restoration could cause problems for people buying and selling real estate. Let’s delve into this blog to know more about it.
Restricted indexation consequences
The recent changes state that only certain properties, like land and buildings, qualify for indexation, while other asset types are left out. Any investments made after July 23, 2024, on any asset type, won’t be eligible for indexation. This change creates an imbalance in how assets are taxed. This leads to unexpected problems for investors.
For instance, you invested in Asset A on March 31, 2001, and Asset B on April 1, 2001, with the same capital. In 2024, both properties selling price worth is the same. However, due to the partial indexation rule, the taxes you’d pay when selling these properties would differ greatly.
The Need for Full Indexation Restoration
The above example shows the need to bring back full indexation for all asset types, without any cutoff dates. Inflation decreases the value of money over time, and without indexation, the government is essentially placing an extra tax burden on investors.
This could make people think twice before buying property, especially in the real estate market. If people know they won’t get indexation benefits, they might not buy as much, which could hurt the resale market in India. If homes don’t sell, rental prices could rise, making living more expensive. Additionally, the lack of indexation could scare away foreign investors, which would negatively impact the real estate market even more.
To sum up, the partial restoration of indexation in the finance bill has raised concerns for real estate buyers and sellers. The differences in property taxing could slow down property sales, increase rental costs, and reduce foreign investment. To make things fair and encourage people to invest in real estate, it’s important to fully restore indexations for all assets, without any cutoff dates. This change would help investors and support the growth of India’s real estate market.