STOP Investing in Real Estate: The Worst Asset Ever!

Summary

In this special episode, PR Sund discusses the recent changes in India's budget affecting real estate and capital gains tax. The long-term capital gain tax for equity has risen to 12.5%, while short-term tax increased to 20%. For real estate, the tax has been reduced to 12.5% without indexation benefit, causing public backlash. The government later amended this, allowing those who bought properties before the budget to choose between paying 12.5% without indexation or 20% with it. The video also examines the tax benefits for first-time property buyers and the impact of these changes on different classes of property owners, highlighting the unfairness of taxing distressed sellers and calling for a more equitable approach.

Takeaways

• 📈 Long-term capital gain tax for equities increased from 10% to 12.5%, and short-term capital gain tax from 15% to 20%.
• 🏡 Long-term capital gain tax for real estate reduced from 20% to 12.5%, but the indexation benefit was removed, causing backlash.
• 🔄 Amendment allows property buyers before the budget to choose between paying 12.5% without indexation or 20% with indexation.
• 🏠 Initially, the government offered tax benefits of 2 lakh INR for interest payments and 1.5 lakh INR for principal payments on self-occupied property.
• 📉 The second policy change limited tax exemptions to just 2 lakh INR for one property, negatively affecting buyers of multiple properties.
• 💰 New regulations require tax payment on the amount exceeding 10 crores INR when selling and buying properties.
• 😞 The recent budget's changes impact common people more, especially those who own only one property, causing widespread dissatisfaction.
• 🏚️ Selling a property often indicates financial distress; taxing such sales is seen as unfair.
• 💵 In equities, individuals can sell shares in stages to maximize tax exemptions, but this flexibility doesn't apply to real estate.
• 🏘️ The speaker advocates for greater tax exemptions on real estate, particularly for those who only own one property.

Q & A

What changes were made to the long-term capital gain tax for the Equity Market in the recent budget?

The long-term capital gain tax for the Equity Market was increased from 10% to 12.5%.

How was the short-term capital gain tax affected in the recent budget?

The short-term capital gain tax was increased from 15% to 20%.

What was the initial change in the long-term capital gain tax for real estate in the recent budget?

The long-term capital gain tax for real estate was initially reduced from 20% to 12.5%, but the indexation benefit was removed, causing dissatisfaction among people.

How was the initial change in real estate taxation amended to address the backlash?

The amendment allowed those who bought properties before the budget to choose between paying 12.5% without indexation or 20% with indexation.

What tax benefits were available for the first property bought by an individual under the BJP government's earlier policies?

The tax benefits included a deduction for 2 lakh rupees towards interest payment and 1.5 lakh rupees towards the principal amount, although the latter was less beneficial as it fell under ATC.

How did the BJP government's policies change regarding the tax benefits for second or third properties?

The interest paid on second or third properties could no longer be shown as an expense; tax exemption was limited to 2 lakh rupees for each property, not more than one property in a lifetime.

What was the impact of the changes on the tax benefits for rental income from real estate?

The tax benefits for rental income were significantly reduced, as the interest paid on loans could no longer be fully offset against rental income.

What is the effective net rental yield in India considering the cost of loans and rental income?

The effective net rental yield is less than 2%, considering a loan cost of about 9% and rental income of up to 2.5%, with an additional 30% set aside for maintenance.

How did the changes affect the tax implications for selling a property worth more than 10 CR?

For properties sold for more than 10 CR, only the first 10 CR is tax-exempt; the remaining amount is subject to capital gain tax.

Who were the groups most affected by the changes in real estate taxation policies?

The most affected groups were second and third property buyers and wealthier individuals, while the middle and lower-middle classes were less affected initially.

What argument does the speaker present against taxing individuals who sell their property due to distress?

The speaker argues that taxing individuals who sell their property due to distress, such as medical expenses or job loss, is unfair and adds to their hardship.

Why does the speaker believe there should be a threshold for capital gain tax in real estate similar to the Equity Market?

The speaker believes that a threshold would be fairer, as it would exempt small profits from tax, allowing for reasonable exemptions for those who are in distress or making small gains.

What is the speaker's view on the comparison of tax policies in India with those in other countries?

The speaker mentions that in the next video, they will compare tax policies in India with those in other countries to highlight differences and suggest improvements.

What is the speaker's opinion on the fairness of tax collection?

The speaker believes that tax collection should be like a honey bee taking honey from a flower, causing no harm, unlike sugarcane juice extraction which is more harsh and damaging.

What is the speaker's stance on the comparison between selling shares in the Equity Market and selling real estate?

The speaker points out that in the Equity Market, one can strategically book profits to avoid tax, unlike in real estate where selling parts of a property over time is not possible, making the tax system unfair.