Indexation Benefit Removed from Real Estate

It's been couple of days after the budget and still the hangover has not been over. We are getting some fresh perspective from one or other about the budget. A lot of business man saying that it's a great budget and a lot of common man as well as opposition is saying that it's a bad budget.

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But again most of the Indians who are living below the poverty line doesn't know anything about it and for then nothing has changed. And I am talking about 80% of the people, for them doesn't matter what happens in the budget, for them what matters is to get 2 times food. And since the tax payers are handful, it's doesn't matter to the government much.

Now one thing which came to most of the people's attention is that the indexation benefit has been removed from the Real Estate. Now what is indexation in real estate. Indexation means changing the purchase price as per the inflation thereby reducing tax liability on gains from investments. For example, if the purchase price of a land is Rs 5 Lakh before 20 years. In today's term it should be adjusted as per the inflation to say Rs 20 lakh

Now if that person sells it for Rs 30 lakh then the tax liability is only Rs 10 lakh ( 30 lakh - 20 lakh). And before this budget he has to pay 20% on 10 lakh I.e. 2 lakh. Now after this budget when the indexation benefit has been removed, the tax liability has been increased. Now anyone selling that property have to pay tax on Rs 25 lakh, I.e. sell price minus purchase price. And the tax will be Rs 3.125 Lakh. That is almost 50% more tax.

So this indexation will hit hard for people who have invested in the real estate only for the gain. As well as for those people who have got the land from their ancestors.

One way to get away from this tax is to invest the amount back to the property. It was previously there and it is again there that if you invest the real estate money in the real estate and keep the new real estate for say 3 years then you don't have to pay any tax. In this way your tax liability is almost 0. This is one of the way to get away from this indexation horror of the real estate.

Posted Using InLeo Alpha