1.
Purchase
of Property. Once you
book a property with a Developer / Builder, it is deemed as acquisition. When
you sell your real estate for a profit, you have to pay capital gains tax on
the profit earned. The capital gains tax could be Sort Term Capital Gain (held
for less than 3 years) OR Long Term Capital Gain (held for 3 years or more). In
case of ancestral property, date of initial acquisition is taken.
2.
Short
Term Capital Gains (STCG). In
case the property is held for less than 3 years, you pay tax on the profit as
per your Tax slab. It is deemed as normal income like salary.
3.
Long
Term Capital Gain (LTCG). In
case you sell after 3 years, it is Long Term Capital Gain, taxed at 20%.
4.
Indexation. To cater for inflation, Indexation is done.
So, if a property was bought in 2000, for Rs 10 lac & sold in 2013 for Rs
30 lac, the taxation will be as below:
Cost of property 10,
00, 000
Year of property
purchase 2000
Selling
price 50, 00, 000
Year of
sale 2013
Cost inflation
index (CII) in year
2000 389
Cost inflation
index (CII) in year 2013 852
Indexed purchase
price = (2000000 x 852)/ 389 = 43,80,462
Capital
gain 50,00,000- 43,80,462 = 619537
Tax (20% of
Capital
gain) 123,907
5. Date for Taxation / Tax Exemption.
A capital asset means property of any kind. A right to
obtain conveyance of immovable property is "property". Hence, if the
booking agreement and allotment terms and conditions of the builder gave a
right to obtain conveyance on the said property, the property after fulfilling
certain conditions, that itself becomes "an asset" under the
Income-tax Act. The issue which arises w.r.t. transfer of rights in the
property under construction as well as in case of transfer of property (after
taking the possession) is - whether the gain on transfer is short-term or
long-term?
The date which decides the nature of capital gain is “The date of acquisition" In this regard, there can be various views. To qualify the investment in case of builder flats, the date is the date of allotment of the residential flat and the payment of installment is a follow up action. However, you will need to pay Service Tax on 25% of the Cost of flat. In case of ready to move in Flats, the Registration date is taken into account.
The date which decides the nature of capital gain is “The date of acquisition" In this regard, there can be various views. To qualify the investment in case of builder flats, the date is the date of allotment of the residential flat and the payment of installment is a follow up action. However, you will need to pay Service Tax on 25% of the Cost of flat. In case of ready to move in Flats, the Registration date is taken into account.
6. Cost of Property. The cost of
property includes Brokerage paid, cost of improvement etc, which is also
Indexed. So if you paid 1% as brokerage, say 20000/ & spent 3 lac on house
improvement over 3 years, these could be included in COST & reduced from
profits (duly indexed).
7. Saving Tax. If you reinvest the
accrued amount in ONE Residential property of equal or greater value, or in
Govt Specified Bonds, the tax could be saved.
8. Guidance. You could go to my blog https://www.blogger.com/blogger.g?blogID=1402354733683241338#editor/src=sidebar
Or contact Biraj@colonelzinfracon.com;
9818744711, for specific advice. We don’t charge for routine advice. Costs, if
any, depend on the case.
