Without indexation, LTCG spikes 2.9 times on properties bought after 2010: Report

Budget 2024 removed the provision of indexation in the calculation of capital gain tax. A study tried to evaluate its impact on the quantum of taxes and discovered that the taxes, on average, would increase considerably.

This study simulated tax calculations for 10 major cities and found out that LTCG taxes on average increase 2.9 times without indexation benefit. The BankBazaar study is based on RBI’s House Price Index (2011-2024) and the Cost Inflation Index. This report showed that without indexation, the long-term capital gains taxes rise significantly for all holding periods.

The holding periods for LTCG calculations range from 2 years to 13 years ending in March 2024.

The report also shows that longer holding periods correlate with higher taxes with or without indexation. With indexation, the taxes are comparatively higher.

Another finding of the report is that the average indexed tax on LTCG in these 13 years (2010-2023) is 3.90. The report also shows that this average non-indexed tax rises 2.90 times to 11.34, implying additional taxes of 7.44

Short-term holdings

The report suggests that all taxes with indexation were 0 from 2016-17 whereas without indexation, the taxes rose considerably with values of 3.02 to 8.70.

All India LTCG

The report shows that because of indexation, there is no long-term capital gains from 2016-17. These seven years show long-term capital losses. Therefore, despite the 20 percent tax rate, the investor’s tax liability would be zero in these years. However, without indexation, there are huge leaps in the LTCG for all years including from 2016-17.

All India LTCG Tax

The report further shows that there’s a severe loss of tax savings particularly in the years from 2016-17 onwards. From the zero-tax liability, we see considerable liabilities arising for these years. The longer the holding periods, the larger the tax liabilities are.

The study covers house prices in Ahmedabad, Bangalore, Chennai, Delhi, Jaipur, Kanpur, Kochi, Kolkata, Lucknow, Mumbai. It also has an All-India House Price Index.