Real Estate Purchase, Sale, Taxation, Capital Gains, Reinvestment

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.

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.