Real estate news on Property investment can beat inflation impact

Investors/ Investment proposal, Delhi NCR
Posted on Sep 07, 2016

Investing in property helps you beat the effects of inflation and generate high returns, over the long term.

Many buy property for themselves to live in. Owning a property gives one a tremendous sense of confidence.

You can save on the monthly rent. Also, you are insulated from the annual raise in rent and the possibility of having to vacate the house. Further, you can expect to earn high returns over a period of time on your property by way of appreciation in its capital value.

It is to be noted that investing in real estate is relatively different, as opposed to investing in other avenues like Public Provident Fund, fixed deposit, equity, etc. The time horizon for an investment in property should be long. It is not a short-term investment avenue.

The Income Tax Act, in essence, discourages purchase and sale of property over a short term. Under the Income Tax Act, long-term capital gains are taxed at a lower rate. 'Long term' means you should hold the property for more than 36 months. Anything lesser is 'short term' and the general applicable tax rate is levied.

Also, the indexation benefit is available only in case of long term capital gains. Indexation means factoring in the inflation effect while calculating the cost of the property. For example, if a property was purchased for Rs 10 lakh in April 2011, when the Cost Inflation Index was 785, and it was sold in March 2016, when the Cost Inflation Index was 1,081, the indexed cost of the property will be Rs 10 lakh multiplied by 1,081 and divided by 785. That is, Rs 13.77 lakh. If this property was sold for Rs 15 lakh, the capital gains will be Rs 1.23 lakh (Rs 15 lakhs minus Rs 13.77 lakh) and not Rs 5 lakh (Rs 15 lakh minus Rs 10 lakh).

Further, you can avoid paying the long-term capital gains tax in case you invest the capital gains in a new property and hold it for at least 36 months. This way, you can keep multiplying the gains over a period of time.

It is thus a steady process of building wealth. You should not expect gains overnight. But, over a period of time, a property investment always beats the impact of inflation and provides high returns.

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