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Is the Indexation Removal a Tax Burden or a Benefit?

indexation removal

Is the Indexation Removal a Tax Burden or a Benefit?

Investing in house property is a popular choice because it allows you to own a home. Some people also invest to earn a profit by selling the property in the future. It’s important to know that a house property is considered a capital asset for income tax purposes. Any gain or loss from selling a house is taxed under ‘Capital Gains.’ Capital gains or losses can also come from trading stocks, mutual funds, bonds, and other investments.

Budget 2024 Amendments

Holding Period Classification

Starting from FY 24-25, there will be only two holding periods for classifying assets into long-term and short-term: 12 months and 24 months. The 36-month holding period has been removed.

Changes in Tax Rates

Impact of Indexation Removal

What is Capital Gains Tax in India?

Any profit or gain from selling a ‘capital asset’ is known as ‘income from capital gains.’ These gains are taxable in the year when the capital asset transfer occurs, referred to as capital gains tax. There are two types of Capital Gains:

Defining Capital Assets

Capital assets include land, buildings, house properties, vehicles, patents, trademarks, leasehold rights, machinery, and jewelry. This also includes rights in or related to an Indian company, management rights, control, or other legal rights.

Study on the Impact of Indexation Removal

A study evaluated the impact of removing indexation on capital gains tax and found that taxes would increase significantly without indexation. Here’s a summary of the findings:

LTCG Taxes Without Indexation

The study simulated tax calculations for 10 significant cities using RBI’s House Price Index (2011-2024) and the Cost Inflation Index. It found that:

Short-Term Holdings

All India LTCG

All India LTCG Tax

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