REAL ESTATE PLAY: THE END OF INDIA’S BIGGEST TAX HACK

For years, the easiest dinner-table flex in India was a line that began with “You know what I bought that flat for?” and ended with a smug smile. Real estate wasn’t just an investment, it was a moral victory. Hold long enough and inflation would ensure you paid no to minimal tax. All thanks to indexation, a process that adjusts the cost of acquisition for inflation until the year of sale, effectively reducing your capital gains and the tax on them.

- VIJAYKUMAR PURI

That quiet comfort ended last year.

The new capital-gains regime has turned one of India’s oldest wealth lessons on its head. Starting 23 July 2024, property sellers face a fork in the road: either pay 12.5% tax without indexation, or stick with the old but higher rate of 20% with indexation for assets bought before 23 July 2024.

It sounds technical, but the message is simple: the government wants money to move, not sit parked in brick and mortar.

How indexation built an illusion of safety

Indexation was genius in its simplicity. It inflated your purchase cost to match inflation, making long-term property gains look smaller, which in turn made taxes feel lighter.

Buy in 2010 for ₹50 lakh, sell in 2025 for ₹1.5 crore, and your inflation-adjusted cost would swell to around ₹1 crore. You paid 20% on ₹50 lakh, not ₹1 crore. Effective tax rate? Barely 10%. Every real estate connoisseur in every city loved that story.

But over time, it created a peculiar behaviour where people stopped thinking of property as an asset and started treating it as an heirloom with tax benefits.