{"id":306154,"date":"2024-08-01T19:04:47","date_gmt":"2024-08-01T13:34:47","guid":{"rendered":"https:\/\/forumias.com\/blog\/?p=306154"},"modified":"2024-08-01T19:04:47","modified_gmt":"2024-08-01T13:34:47","slug":"concerns-with-removing-indexation","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/concerns-with-removing-indexation\/","title":{"rendered":"Concerns with Removing Indexation"},"content":{"rendered":"

Source<\/strong>: The post concerns with removing indexation has been created, based on the article \u201cOn discarding indexation for LTCG<\/strong>\u201d published in \u201cThe Hindu<\/strong>\u201d on 1st August 2024<\/p>\n

UPSC Syllabus Topic:<\/strong> GS Paper3- Economy-mobilisation of resources<\/p>\n

Context<\/strong>: The article discusses Finance Minister Nirmala Sitharaman’s proposal to eliminate indexation for calculating long-term capital gains (LTCG) tax, replacing it with a 12.5% tax rate on gains. It explains how indexation works and its implications for different assets and taxpayers.<\/p>\n

For detailed information on Changes in India\u2019s tax regime for capital gains <\/strong>read this article here<\/a><\/p>\n

What is the New Proposal regarding LTCG Tax?<\/strong><\/h2>\n

Finance Minister Nirmala Sitharaman has proposed removing indexation in the calculation of long-term capital gains tax. Instead, all gains will be taxed at a flat rate of 12.5%. This change is intended to simplify tax calculations for both taxpayers and the tax administration.<\/p>\n

For detailed information on Indexation<\/strong> read this article here<\/a><\/p>\n

How Does Indexation Work?<\/strong><\/h2>\n
    \n
  1. Indexation adjusts the purchase price of an asset to account for inflation, ensuring taxpayers are taxed on real gains.<\/li>\n
  2. For example:<\/li>\n<\/ol>\n

    A house bought for \u20b910 lakh in 2001.<\/p>\n

    Sold for \u20b975 lakh in 2021.<\/p>\n

    Calculation<\/strong>:<\/p>\n

    Cost Inflation Index (CII) for 2021: 317.<\/p>\n

    CII for 2001: 100.<\/p>\n

    Indexed purchase price: \u20b910 lakh * (317\/100) = \u20b931.7 lakh.<\/p>\n

    Taxable gain: \u20b975 lakh – \u20b931.7 lakh = \u20b943.3 lakh.<\/p>\n

    Tax Comparison<\/strong>:<\/p>\n

    With indexation at 20% tax rate: Tax = \u20b98.7 lakh.<\/p>\n

    Without indexation at 12.5% tax rate: Tax = \u20b98.13 lakh.<\/p>\n

    What Are the Concerns with Removing Indexation?<\/strong><\/h2>\n
      \n
    1. Higher Tax Liability<\/strong>: Without indexation, tax liabilities can increase significantly. For example, selling a house for \u20b940 lakh in 2021 without indexation results in a tax of \u20b93.75 lakh, compared to \u20b91.66 lakh with indexation.<\/li>\n
    2. Flat or Slumping Markets<\/strong>: Assets that do not grow exponentially benefit more from indexation, as seen with a BankBazaar study showing LTCG tax tripled for properties bought after 2010 without indexation.<\/li>\n
    3. Short-Term Sales<\/strong>: Individuals benefit more by selling assets quickly (3-4 years) rather than holding them long-term (10 years or more).<\/li>\n
    4. Investment Trusts and Bonds<\/strong>: REITs and infrastructure funds, which have lower returns, may suffer. Bonds might become less popular.<\/li>\n
    5. Property Undervaluation<\/strong>: Properties may be sold at circle rates to reduce tax, increasing black money transactions, as warned by AAP MP Raghav Chadha.<\/li>\n<\/ol>\n

      Question for practice:<\/strong><\/p>\n

      Discuss the potential implications of removing indexation for calculating long-term capital gains tax and replacing it with a flat 12.5% tax rate, as proposed by Finance Minister Nirmala Sitharaman.<\/p>\n","protected":false},"excerpt":{"rendered":"

      Source: The post concerns with removing indexation has been created, based on the article \u201cOn discarding indexation for LTCG\u201d published in \u201cThe Hindu\u201d on 1st August 2024 UPSC Syllabus Topic: GS Paper3- Economy-mobilisation of resources Context: The article discusses Finance Minister Nirmala Sitharaman’s proposal to eliminate indexation for calculating long-term capital gains (LTCG) tax, replacing… Continue reading Concerns with Removing Indexation<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,167],"tags":[216,8184,10498],"class_list":["post-306154","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-economy-subject","tag-gs-paper-3","tag-indian-economy","tag-the-hindu","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/306154","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=306154"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/306154\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=306154"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=306154"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=306154"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}