Removing Indexation Benefits Of Investors Is A Serious Mistake Of The Government: Raghav Chadha

Summary

The speaker passionately advocates for the restoration of indexation on long-term capital gains, arguing that its removal disincentivizes investment in India. They explain how indexation adjusts for inflation to calculate capital gains tax, using a real estate example to illustrate the significant tax implications. The speaker warns that without indexation, real estate investment will decline, leading to undervaluation of property deals and an influx of black money in the sector, urging the government to reconsider its decision.

Takeaways

• 📉 The speaker is advocating for the restoration of indexation on long-term capital gains to promote investment by providing incentives to investors worldwide.
• 🏠 The removal of indexation disincentivizes the investor class, as it increases the tax burden on investments, which is likened to putting a 'hand in the investor's pocket'.
• 💰 The speaker argues against the notion that indexation is akin to taxing inflation, emphasizing that it is a necessary measure to adjust for the cost of acquisition due to inflation.
• 📈 The example given illustrates the significant impact of indexation on the tax calculation for capital gains, showing a substantial difference in tax liabilities with and without indexation.
• 🏡 The example involves a property purchased in 2001 for ₹1 crore, which has appreciated to ₹4.17 crores, highlighting the tax implications of selling the property under both old and new tax systems.
• 📊 Under the old system with indexation, the tax liability on a sale price of ₹4.17 crores would be approximately ₹1.08 lakh, whereas under the new system without indexation, it would be around ₹39.62 lakh.
• 🚫 The speaker warns of three potential negative consequences if indexation is not reinstated: a decline in real estate investment, undervaluation of property deals, and a surge in black money in the real estate sector.
• 📉 The speaker predicts a decrease in real estate investment if indexation is not restored, as it would make it harder for people to afford their dream homes.
• 💔 The undervaluation of property deals could lead to a market where properties are bought and sold at circular rates without reflecting their true value.
• 💸 The potential influx of black money in the real estate sector is a concern raised by the speaker, suggesting that without indexation, there will be a significant increase in illicit financial activities.
• 🙏 The speaker makes a plea to the government not to remove indexation and expresses concern for the future of long-term capital investment if the current policy is not reversed.

Q & A

What is the main concern expressed in the script regarding the Indian real estate market?

The script expresses concern over the removal of indexation benefits for long-term capital gains tax on real estate investments, which could disincentivize investors and negatively impact the real estate market.

What is the purpose of indexation in the context of capital gains tax in India?

Indexation is used to adjust the cost of an asset for inflation, which helps in calculating the capital gains tax by considering the increase in the value of money over time.

Why is the speaker urging the government not to remove indexation benefits?

The speaker is urging the government to retain indexation benefits to promote investment in the real estate sector and to prevent potential negative consequences such as a decrease in investment, undervaluation of property deals, and an increase in black money.

What is the example given in the script to illustrate the impact of removing indexation on capital gains tax?

The example given is of a property purchased for ₹1 crore in 2001, which has appreciated to ₹4.17 crores. The impact of removing indexation is shown by comparing the tax liability under the old and new systems, highlighting a significant increase in tax without indexation.

How does the speaker describe the potential real estate market scenario without indexation?

The speaker predicts a decrease in investment in real estate, difficulty for people to buy their dream homes, undervaluation of property deals, and a surge in black money in the real estate sector.

What is the difference in tax liability between the old and new systems as per the example given in the script?

Under the old system with indexation, the tax liability is approximately ₹1.08 lakh, while under the new system without indexation, the tax liability increases to nearly ₹39.62 lakh, showing a significant difference.

What is the speaker's suggestion to the government regarding indexation and real estate investments?

The speaker suggests that the government should not remove indexation benefits and should consider the long-term implications on the real estate market and the economy.

How does inflation affect the value of money according to the script?

The script mentions that inflation erodes the value of money, which is why indexation is important in adjusting the cost of assets to reflect the increased cost of acquiring them due to inflation.

What is the speaker's view on the recent reduction of capital gains tax from 20% to 12.5%?

The speaker seems to be critical of the reduction, using it as a point to argue that removing indexation would still impose a heavy additional tax burden on investors.

What are the three things the speaker predicts will happen in India if indexation is not reinstated?

The speaker predicts a decrease in real estate investment, undervaluation of property deals, and a significant increase in black money in the real estate sector.

What is the speaker's final message to the audience regarding the importance of indexation for long-term capital investments?

The speaker emphasizes the critical need for indexation in long-term capital investments to maintain a healthy real estate market and to prevent adverse economic effects.