A recent report reveals that holding properties for longer periods results in higher taxes, whether or not indexation is applied. However, with indexation, the taxes are relatively higher.
The 2024 budget has eliminated indexation from capital gains tax calculations. A study evaluated this change, finding that taxes would significantly rise on average.
By simulating tax calculations for ten major cities, the study discovered that LTCG taxes increase 2.9 times without indexation. Using data from RBI’s House Price Index (2011-2024) and the Cost Inflation Index, the report highlighted that long-term capital gains taxes spike substantially across all holding periods without indexation.
LTCG holding periods vary from 2 to 13 years, ending in March 2024. The report indicates that longer holding periods lead to higher taxes, regardless of indexation. Yet, taxes are higher with indexation.
The report also noted that the average indexed LTCG tax from 2010 to 2023 was 3.90. Without indexation, this tax average surged 2.90 times to 11.34, indicating additional taxes of 7.44.
Short-term Holdings
The report found that taxes with indexation were zero from 2016-17, while without indexation, they rose significantly, ranging from 3.02 to 8.70.
All India LTCG
Due to indexation, there were no long-term capital gains from 2016-17, leading to long-term capital losses over these seven years. Despite the 20 percent tax rate, investors had zero tax liability during this period. Conversely, without indexation, LTCG saw substantial increases every year, including from 2016-17.
All India LTCG Tax
The report highlighted severe tax savings losses, especially from 2016-17 onward. From a zero-tax liability, considerable liabilities emerged in these years. Longer holding periods resulted in larger tax liabilities.
The study analyzed house prices in Ahmedabad, Bangalore, Chennai, Delhi, Jaipur, Kanpur, Kochi, Kolkata, Lucknow, and Mumbai, along with an All-India House Price Index.
