For a long time, the real estate market has taken the benefits of indexation, which has remained an unsaid norm in the real estate industry. For a homebuyer, there are multiple reasons why they choose indexation, as it lowers the profit one can make by the sale of the property.
It helps a person to reduce the total tax rate; thus, for an individual who works as a real estate agent, removing indexation benefits is a big shift in the business model. When it comes to the removal of indexation benefits then, lowering the LTCG is another way through which one can compensate for that loss.
However, it needs to be determined how a person can assess both these cases and take advantage of something that is a better one. A person who intends to buy a property with the help of a DSA partner app needs to choose how they can sell that as they will come to the new means of taxation.
What is an Indexation Benefit?
There is a concept of short-term and long-term capital gains, and any property that has a holding period of more than 2 years is considered a long-term capital gain. An individual who is dealing with the market regarding the sale of the property needs to take note of the taxes.
Certain taxes are charged by the government when it realizes long-term capital gains. The government used to charge a 20% flat rate on the profit but it used to give the seller the indexation benefit.
There are multiple benefits of the indexation rule as we have witnessed earlier. If an individual bought a property worth 2 Cr rupees, then at that time, and after 15 years, the property is valued at around 4 Cr rupees, then the net profit a person is making is 2 Crs. As per the indexation benefit, the property value will be considered around 3 Cr due to inflation and an individual needs to give tax on that 1 Cr capital gain.
Under the old tax rate of 20% one needs to pay 20 lakh rupees as taxes. However, without the benefit of taxes things will look drastically different. An individual then needs to pay the tax of 12.5% on the entire profit amount. It will result in a person paying 25 lakhs in taxes compared to the 20 lakhs one is paying with the indexation benefits.
How the Recent Change of Lowering LTCG Tax Rate on Property Work
The lowering of the LTCG tax rate for property sales is done to compensate for the benefits of indexation; however, it’s still quite more than the earlier structure of selling properties. Now, this announcement has brought both praise and criticism for the present government as it makes the transaction a costly affair, and it might raise a black market for property transactions, which will increase the loss of revenue for the government.
Even new homeowners are looking for other alternatives to keep their hard-earned money as real estate for a long time has remained a good asset where one can stay and also invest in having a safety net and financial security.
Now, people are taking of DSA’s help to get their hands on new real estate projects. For those who don’t know, DSA’s full form it’s a Direct Selling Agent, and they can help you to finance the things you want to purchase. Whether it’s a loan or a home loan, one can get that with the help of a DSA.
What Effect Will It Have on the Builders Market?
There is a certain nuance for those who have purchased a property before July 2023, and those properties and their papers will have the benefit of indexation under the “grandfathering clause.”
It allows the older homes to take the benefit of indexation, and through that, one can choose to reduce their tax liabilities and get the same benefit. The builders, at the current time, will not get immediate bookings as the property market gets less attractive. However, it will help the long-term home buyers who are buying a home to stay in that property.
Thus, in the way forward, there will be less gloomy homes where the owners have just purchased multiple properties to make a profit out of those, to genuine buyers who want to reside in those homes.